It's back to school time, and a lot has changed since I was kid. School often starts in mid-August instead of after Labor Day. Students work with computers instead of just paper and pencils. Public colleges and universities were affordable ... and student debt barely existed.
Now, student loan debt is the Godzilla of the Gen X and Millennial generations, crushing their economic dreams under financial burdens. Student loan debt is now estimated to be over $1.1 trillion of which about $200 billion is in default -- all guaranteed by taxpayers. Approximately 40 million Americans have at least one student loan.
There are several reasons for this:
- Loan programs that were originally aimed at making college accessible to low-income families mushroomed into mainstream financing tools for middle class families. Nearly 20 million Americans attend college each year. Of that 20 million, close to 12 million -- or 60% -- borrow annually to help cover costs. The problem is even more severe in minority communities that already struggle to send their children to college. More than 80% of black students graduate with student loan debt.
- Congress has allowed student loan interest to soar higher than the other available interest. In 2013, Congress agreed to cap education loan rates at 8.25% for undergraduate Stafford loans, 9.5% for graduate Stafford loans, and 10.5% for PLUS loans that are taken out by parents.
- Colleges and universities encourage students to take out loans at the same time that their costs have skyrocketed. Students are carrying most of the burden of these increased costs. From 2004 to 2014, in-state tuition and fees at four-year public colleges rose 42%, counting inflation.
Clearly the burden of debt on students and their families -- $68 billion so far this year -- is stalling their economic advancement. While Labor Department statistics show higher earnings and lower unemployment for workers with college degrees, the class of 2015 graduated with an average of $35,000 in student loan debt. They are unable to save, invest, start a business or a family, purchase homes or follow the paths of previous generations to financial independence and security.
Unlike Republicans, who offer no serious reforms to reduce student debt, Democrats are taking this issue head-on. In 2006, one of the first things Democrats did as the majority in Congress was to lower student loan rates and increase Pell Grants. President Obama has eliminated private profiteering on federally funded loans by removing big banks from the equation and returning the administration of the loans to the federal government. Senator Elizabeth Warren introduced a proposal that would let student-loan borrowers with high interest rates refinance their debt at today’s rates.
Locally, Speaker Toni Atkins stood shoulder to shoulder with Governor Jerry Brown to oppose tuition hikes proposed by University of California regents this year. Also, Senator Marty Block passed legislation for a pilot program for community colleges to offer some four-year degrees. He has also proposed tuition freezes for California public colleges, as well as policies that would help students finish their degrees on time, avoiding unneccesary loans.
Democratic presidential candidates are taking it even farther. This is an issue that resonates across demographic, economic, social, and political lines, with significant economic and social impacts on American families.
Hillary Clinton's plan includes giving grants to states to eliminate tuition for students attending a four-year public college. It would require students to help pay their way by contributing based on what they earn from ten hours of work per week. Community college attendance would be free. Rates on student loans would be reduced. The G.I. bill would be updated to help veterans, and the AmeriCorps service program would be expanded. The cost of $350 billion over ten years would be financed by reduced tax deductions for more affluent taxpayers. Existing student loans could be refinanced at current low interest rates, and more Americans would be able to enroll in repayment plans based on their wages.
Senator Bernie Sanders authored a bill that would end college tuition all together. The “College for All Act” would have the federal government pay for two-thirds of the cost of public college tuition and ask states to pick up the tab for the remaining third. The schools would be barred from using federal money to increase administrator salaries or build non-academic buildings like sports stadiums. Student loan interest rates for undergraduates would be cut to just over two percent, and would be tied to inflation but capped at 8.25%. The bill would also expand federal work-study programs and make them available to more students at more schools. Sanders’ plan is estimated to cost $750 billion over ten years.
Former Governor Martin O'Malley has proposed a plan that would lower public university tuition rates, tie loan repayment to income, and increase Pell Grants. Governor O’Malley takes this issue very personally. He and his wife have already incurred $339,200 in loans to put the two eldest of their four children through universities. College affordability was a priority for O’Malley during his tenure as governor.
Any of these plans would cost significantly less than the trillion dollars in liability that taxpayers are on the hook for now if loans go into default.
The fact is, college tuition costs are rising faster than health care costs, and if we don’t do something about it, this could be the cause of the next economic crisis. Investing in our future and relieving a burden on the economy is the right thing to do.