Student debt should be topic for presidential candidates
By Roy Ockert Jr.
Aug. 11, 2015
While the first “debates” featuring the 17 Republican presidential candidates produced lots of fire and smoke, nothing much of substance came out of the.
The 2-hour main event on Fox News mostly was the Donald Trump Show, and it must have made insult artist Don Rickles proud. Although the panel of Fox celebrities asked a few good questions, many of the most critical issues that affect Americans today were not even mentioned — the Highway Trust Fund, Citizens United, climate change, disappearance of the middle class or student debt.
I touched on the latter in last week’s column about a new performance-based funding policy for Arkansas’ public colleges and universities, and it’s worth exploring in more detail as a new school year approaches.
Democratic frontrunner Hillary Clinton made it a presidential issue on Monday when she rolled out a higher education plan that would help millions of people pay for college and reduce interest rates for people with student loans. While the plan would have little chance in today’s do-nothing Congress, give Clinton credit for at least offering a possible solution to a growing national problem.
That problem is this: Student debt has become a ticking time bomb, which if not defused will wreak havoc for generations of Americans to come.
We’ve set a college education as the key to economic success in life. At the same time, though, we continue to raise the price beyond the means of many people. As a result, they borrow against their future, and that cumulative debt has become an albatross for both the debtors and the country.
The Federal Reserve Bank of New York reported earlier this year that student loan balances, growing at an average of 13 percent a year, have more than tripled since 2004 — to nearly $1.2 trillion in 2014. The number of borrowers now tops 43 million people, and the average balance per borrower is $27,000.
Student loan debt has passed credit cards and auto loans to become the second biggest source of personal debt in the country, behind only home mortgages ($8.2 trillion at the end of 2014).
To make matters worse, our federal government, in the interest of making college affordable to more Americans, has virtually taken over the student loan market. Commercial banks were glad to give up these low-interest loans. Now the government earns more than $50 billion a year from student-loan interest payments, about 2 percent of total federal revenue.
State governments haven’t helped. By diverting revenue away from higher education, they are forcing public colleges and universities to raise tuition and fees at an annual rate that is almost always higher than the Consumer Price Index.
The College Board’s 2014-15 pricing guide shows that in-state tuition and fees at public 4-year institutions ranged from a low of $4,646 annually in Wyoming to a high of $14,712 in New Hampshire. Arkansas’ average of $7,567 ranked 17th from the bottom. The U.S. average was $9,139.
Keep in mind those numbers don’t include room and board.
The Arkansas Legislature this year kept the state’s higher education budget flat, which obviously does not keep up with the CPI. Significantly, the lawmakers cut Arkansas lottery scholarships in half for freshmen — from $2,000 to $1,00 — thus increasing the burden for beginning students.
The weight of student loans can be especially heavy for those who fail, for whatever reason, to complete their degrees. Statistically, they are less likely to reap the financial rewards of a college degree and yet must repay the loans. Many find they must postpone other decisions, such as buying a house.
For-profit colleges have become a special problem in the market. In May Corinthian Colleges, one of the nation’s largest for-profit education companies, closed down and filed for bankruptcy. That left tens of thousands of students, many of whom had received federal loans to attend, with no degree or one that meant little to employers.
Claiming that they were the victims of fraudulent marketing and recruiting tactics and that their degrees were worthless, 15 students declared that they would no longer repay their loans. Soon more students joined them.
In June the U.S. Department of Education announced that it would forgive federal loans for Corinthian students, a decision that could cost the federal government an estimated $3.5 billion. It also establishes a precedent for other cases.
Some money managers suggest that the federal government will be under increasing political pressure to forgive loans to many others.
“In terms of American exceptionalism, student loan debt stands out,” Janet Lorin wrote in a Bloomberg News report last year. “No other country imposes the kind of costs on college and university students that the U.S. does, and nowhere else do loans cover so much of those costs.”
Clinton’s plan would address many of these issues with ideas borrowed from lawmakers on both sides of the aisle. Among other things, it would allow existing borrowers to refinance their loans, thus cutting their interest rates, and provide grants for states to help keep their students from going into debt. Its estimated cost of $350 billion over 10 years would be paid for by cutting some tax deductions for the wealthiest Americans.
That’s an idea much more worth discussing than The Donald’s latest insult.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at royo@suddenlink.net.