Federal Solutions To Our Student Loan Problems

Op-ed in the Washington Post on April 24, 2015

My dad grew up in a country that understood that the more its people learned, the more its people earned. So after deploying to fly a B-24 Liberator over Japan, he went to college on the GI Bill and learned enough to take up his own law practice. And he earned enough to start a family, raising my siblings and me to understand that if we worked hard and gave back, there was a strong and bright future ahead.

Today, our kids aren’t getting the same bargain that my dad did. The vast majority of students – 70 percent – are now graduating with debt. On average, they’re carrying loans big enough to buy a nice car or cover the bulk of a down payment on a new house. But instead of making those investments, or starting a family or a business, they’re struggling to keep up with student loan payments or risking default.

The result: total student loan debt in our country is $1.3 trillion and growing. First-time buyers are purchasing a smaller share of houses, and people under 30 a smaller share of businesses, than at any time since the late 1980s. And the problem will only get worse. Although the average tuition at a public four-year college has more than tripled over the past 30 years, the typical family’s income has barely budged.

One might ask how this nation fell from first in the world to fourteenth in producing college graduates.

We did it one onerous student loan at a time.

In Maryland, we saw these trends and refused to give up. We froze tuition at public four-year institutions, while making investments in universities, community colleges, and financial aid to help make up the difference. We took steps to make sure our high school students were graduating with a degree that’s worth something, and with some college credit or technical training already under their belt.

But like any state, we couldn’t solve the problem on our own. To really make a dent in student debt, the federal government will have to act.

Fortunately, the solutions are simple and straightforward.

First, Congress must allow students to refinance the debt they already have. Because unlike homeowners or businesses, student borrowers can’t refinance their loans.

This is outrageous. If we were able to bail out big banks, we can figure out a way to refinance college loans.

It’s also a big problem. Although Congress lowered student loan interest rates in 2013, they only extended the fix to new borrowers. That leaves millions of existing borrowers piling up debt at interest rates at or above 7 percent. Because Congress set the high rates, Congress has the power to fix them.

Second, we should cap the monthly payments on students’ loans, so that students whose passion is teaching or policing or national service can pursue their dreams without worrying about debt or default.

The good news is that we already have programs in place to do this. Numerous “income-based repayment” programs are available, and the Obama Administration recently expanded students’ access to them.

But enrollment in the programs is low. A better policy would be to make income-based repayment automatic, then let kids opt out if they want to.

In addition, all low- and middle-income students enrolled in the programs should have their minimum monthly loan payments capped at 10 percent of their take-home pay. In many cases, this would save students hundreds of dollars on their payments every month. And all borrowers who take advantage of these programs would eventually have the balance on their loan forgiven.

Alone, these two proposals – letting students refinance their loans, and capping their loan payments – will go a long way toward relieving student debt. They are smart, common sense policies that would make millions of students better off.

To be sure, to end the student debt crisis for good we have to make college affordable for everyone. We can’t afford to make loans easier to pay off, only to have colleges keep raising tuition costs. And we must hold colleges that receive federal aid dollars accountable for directing aid toward the students who need it most — by tying the receipt of aid to schools’ performance on that score, or rewarding schools that excel at making college affordable.

Our ultimate goal must be for every student, most especially low-income and middle-class students, to be able to go to college debt-free. But making sure our students get a far better deal on their loans is a crucial first step.