The student debt fight is back -- with a vengeance.
Once again, current students are facing the possibility of interest rates on Stafford Federal student loans doubling.
Once again, we are asking what our leaders are doing about a crisis that gets worse every year.
Once again, the answer is: Not much.
That is a huge problem -- and not just for millennials, or young people born between 1980 and 2000. The approximately $1.1 trillion in student debt out there already constitutes a crisis for every one of us.
The number of student loan borrowers increased from 23.3 millin in 2005 to 38.8 million in 2012 and the average student loan balance increased from $16,651 in 2005 to $24,803 in 2012 (Click Image To Enlarge)
It is the only form of household debt that has continued to rise during the Great Recession. It is also the only form of debt that cannot be discharged under bankruptcy or even death, as parents who have lost children have discovered to their horror. It is preventing young people from buying homes and starting businesses.
In short, student debt is a $1.1 trillion anvil dragging down the entire U.S. economy.
Unfortunately, the conversation in Washington is not about big fixes, but simply how to avoid making matters worse by letting interest rates rise.
Last year, the interest rate on federal Stafford student loans was set to double from 3.4% to 6.8%. There was a massive outcry from students and organizations like my own, Rebuild the Dream. Perhaps fearing young people's electoral clout, Congress kicked the can down the road a year.
The average cost of a 4-year college education grew from $8,756 in 1980 to $21,657 in 2010 and the average cost of a 2-year college education grew from $5,580 in 1980 to $8,734 in 2010 (Click Image To Enlarge)
So here we go again: Last week, President Obama waded back into fight, urging Congress to prevent the rate hike scheduled for July 1.
But this year, something is different: Sen. Elizabeth Warren. A few weeks ago, Warren, D-Massachusetts, proposed groundbreaking legislation that would give students the same deal that big Wall Street banks get. This bill is good policy, and even better politics.
The top 10% of households (net worth > $983K) had students owing the least student debt (3% of total student loans) than the bottom 25% of households (networth < $58.5K) owed the most in student loans (58% of total student loans). (Click Image To Enlarge)
After all, why are we loaning money to mega-profitable international financial institutions at 0.75%, but demanding up to nine times more from our own young people?
By comparison, the otherwise ideal Harkin-Reid proposal for a two-year extension of the current 3.4% rate is simply not as ambitious.
Unfortunately, the proposals with the most energy behind them are worse than both these options. House Republicans, the Obama administration, and a number of senators are all pushing to permanently tie the rate for student loans to the government's borrowing costs.
Nearly 12% of all student loan borrowers are now 90 days past due on their loans. Credit card, home equity and auto loan borrowers constitute 10%, 6% and 4.5% of total loans now 90 days past due. (Click Image To Enlarge)
It may seem commonsense, but the devil is in the details.
For instance, the Republican plan passed recently is just plain bad for students. Interest rates on July 1 would actually be higher than 6.8% for some borrowers, and vary wildly and unpredictably over the lifetime of the loan. The government would mark up the costs 2.5% to 4.5%, based on the type of loan. The profit would pay down a deficit young people did not create, instead of funding education.
If Congress does nothing the annual interest on student loans could eventually skyrocket to $9,083 per year. Under President Barack Obama's alternate student loan plan, annual interest on student loans will increase gradually from $3,959 in 2013 to $8,133 in 2020. (Click Image To Enlarge)
The Obama plan, by contrast, has better terms for borrowers and would offer fixed-rate loans that will not suddenly spike in cost. But it lacks any cap on how high interest rates can go, and continues the worrying practice of the government profiting off student loans.
As for borrowers who already have loans? Sen. Kirsten Gillibrand, D-New York, has proposed allowing students to simply refinance their old loans at today's historically low rates. It is almost shocking that you cannot do this already. California Democratic Rep. Karen Bass' Student Loan Fairness Act would make repayment fairer and easier.
The high rates of unemployment (12.5%) among new college graduates is alarming and forcing many to take part-time jobs and jobs paying minimum wages. This means many college graduates will be forced to take on several low-paying jobs just to make ends meet and payoff their student loans (Click Image To Enlarge)
Young people should be rallying behind the Warren, Bass, and Gillibrand bills. But they can and should demand a whole lot more.
The problem is not just that the cost of borrowing could go up. The real problem is the skyrocketing cost of tuition that is forcing students to take on unmanageable levels of debt in the first place. It is in our leaders' own best interests to do something about that.
After all, millennials will make up one-third of eligible voters in 2020. It is no accident that the two best Senate bills were introduced by senators -- Warren and Gillibrand -- who have been rumored as future presidential candidates.
But at the end of the day, this is not a student issue. It is not a youth issue. This is a corrosive crisis that touches your life whether you know it or not. If you live in the United States of America, this is your issue.
The student debt fight is back -- and it is not going away any time soon.
COMMENTARY: The silver lining to this story is that more Americans are pursuing higher education, even if they are taking out loans to do so. Some economists are troubled by the fact that fewer people under 30 are buying homes and other goods as more are paying for college, but higher education is, on the whole, a solid place to put your money. In 2010, the median earnings for young adults with bachelors degrees were 50 percent higher than those of their counterparts with high school diplomas. But for many members of Generation Debt, the benefits of having a diploma may seem a long way off.
I am definitely concerned about the Millennial generation and the future of America. There is no student loan relief in sight, and the rising costs of earning a college education, the shrinking middle class, the large number of households at the lower end of the economic scale with student borrowers, the high unemployment rate among college grads, and rising deliquency rate among college borrowers, presents long-term problems for the U.S. economy.
- Credit ratings will be lowered.
- Lenders will be less inclined to lend to Millennials with large student loan balances.
- Overall consumer spending will be negatively impacted because Millennials wil buy less.
- The housing industry cannot rely on younger Americans to become homeowners and housing prices will become stagnant.