Editorial: Time to ease loan debt for graduates
For more than a decade, graduating college students have been slumping into the future, weighted down by a millstone of debt heavy enough, according to the Consumer Financial Protection Bureau, to serve as a drag on the rest of the economy.
New Hampshire graduates leave college with an average debt of $33,000, the second highest of any state in the nation. Students who fail to graduate or who are unable to complete their degree for financial reasons are even worse off. They have the debt, but no sheepskin to show for it and reduced job prospects.
New Hampshire’s senior Sen. Jeanne Shaheen and Massachusetts Sen. Elizabeth Warren have joined in an effort to give indebted students a small measure or relief.
The bill they sponsored last session, the Bank on Students Emergency Loan Refinancing Act, failed to get the 60 Senate votes needed to move forward, but the campaign to allow students to refinance expensive loans and reduced rates continues.
The effort deserves to succeed.
Government should invest in the education of its citizenry, not make money by charging students and their families needlessly high interest rates.
The average debt per student borrower increased by 70 percent between 2004 and 2012, according to a study by the Federal Reserve Bank of New York. Yet between 2000 and 2012, the government made an estimated $66 billion on student loans and the take is growing.
The Congressional Budget Office estimates that the student loan program will make $41.3 billion in profit in 2013 alone.
Last year, Congress lowered the interest rate government charges on new student loans to 3.86 percent for undergraduates, and 5.41 to 6.41 percent for graduate student loans. That measure, however, did nothing to lower the interest rates on the more than $1 trillion in student loan debt that’s keeping students from purchasing homes, pursuing further education, or in some cases, starting a family.
President Obama gave some student debtors a bit of relief recently when he issued an executive order that allows people who took out student loans before 2007 to pay no more than 10 percent of their income in monthly payments.
The income limitation will make life easier for borrowers whose earnings remain low despite having attended college, but it has a downside. The longer payments drag out, the more students will pay in interest on the debt in the long run.
The bill Shaheen supports would allow borrowers to refinance old student debt at the 3.86 percent rate. That would halve interest rates for some debtors. If the bill becomes law, the nonpartisan budget office predicts that $460 billion in old student loans would be refinanced at lower rates.
That would cost the treasury an estimated $61 billion in lost revenue and expenses.
The original loan refinancing bill proposed paying for the program by imposing a small surcharge on the income of people who make more than $1 million per year, an idea backed by billionaire investor Warren Buffett.
Passing a tax like that is beyond the ability of the current dysfunctional Congress. But that shouldn’t keep backers of student debt relief from trying again.
Other financing options should be considered, chief among them is a small tax on stock trades and other financial transactions.
The British government imposes a 0.5 percent tax on every trade on the London stock exchange, a levy that hasn’t kept that city from becoming one of the world’s financial capitals.
A similar tax imposed by the U.S. government would go unnoticed by most investors, punish speculators and easily raise the revenue needed to allow America’s indebted students to shrink the millstone around their neck, stand up straight and get on with their lives.