Student debt is a big, long-time problem needing a solution

 

Bill Knight column for 1-14, 15 or 16, 2021

 No one can say President Trump accomplished nothing in four years. His administration’s First Step program started some prison reforms; it improved generic-drug approval to lower prescription prices; it got treaties between a few Arab nations and Israel; it ensured 5G networks rely on non-Chinese technology.

However, Trump in May vetoed a bipartisan resolution to overturn an Education Department policy making it difficult for students defrauded by for-profit schools to have their federal loans forgiven, and, of course, the administration’s 2017 tax cut added $1 trillion to the national deficit while doing nothing to alleviate the $1.6 trillion in student debt.

Second only to mortgages, student loans are increasing. They totaled $500 billion in 2006; last year alone, $105 billion was borrowed. The most undergrad dependents can borrow is $31,000 (although parents can borrow thousands more for their children’s college costs). But with higher education’s price tags rising in recent decades, there’s little choice. About 17% of Illinoisans (more than 2 million people) carry student debt, according to the State Treasurer’ office. They average almost $30,000; 12 % of them have their loans in collections.

That’s confirmed by the Department of Education’s online “College Scorecard,” which reports that 16% of Northwestern University students graduate with loans of some $30,000; at Knox College it’s 62% and $27,000; at SIU/Carbondale it’s 66% and $27,000.

Conventional wisdom criticizing borrowers is mistaken, like “they should work their way through college” and “it’s just a problem for young people.”

However, the College Board says the average in-state cost for tuition, fees, room and board at a public four-year university was $21,370 last year. Given that the federal minimum wage is $7.25 an hour, a student would have to work a full-time job WITH 10 hours of overtime at time and a half, every week of the year to pay for college. Not a lot of time to study.               

Elsewhere, AARP says that Americans 50 years old and up together have a student-loan debt of $290 billion – more than five times the amount for the demographic in 2005.

Illinois’ Student Investment Account Act went into effect last August to help borrowers refinance student loans.

“It will provide Illinois families with additional financial capacity to purchase homes, start families, save for education and retirement, start businesses, and invest in their potential,” said State Treasurer Michael Frerichs.

Nationally, potential reforms include extending the pandemic “pause” beyond its Jan. 31 expiration; canceling a big chunk of student debt (Joe Biden suggested $10,000 as a possibility; Sens. Chuck Schumer and Elizabeth Warren favor forgiving $50,000); restoring borrowers’ eligibility to cancel student loans through bankruptcy; offering tax credits to employers that help workers repay student loans.

Warren said, “All on his own, President-elect Biden will have the ability to administratively cancel billions of dollars in student-loan debt using the authority that Congress has already given to the Secretary of Education.

“This is the single most effective economic stimulus that is available through executive action,” she continued.

“That would be beneficial for everyone across the country,” reported Rich Smith, associate editor of The Stranger, a Seattle newspaper, “– and just imagine what would happen there in terms of economic stimulus.”

Joe Biden also has suggested changing the current means-tested repayment program of 10% of discretionary income with a hefty tax penalty on the balance after 20 years to 5% of discretionary income with no tax penalty at the end.

Apart from executive orders issued under the Higher Education Act of 1965 – which created the federal student-loan program and authorizes the Education Secretary to “compromise, waive or release” federal student-loan debts – legislation may be needed, too. Although polls say 58% of registered voters back eliminating all student-loan debt, such support could grow and encourage help on Capitol Hill if reforms extend to non-college instruction such as vocational training.

Whichever approach is undertaken, student-loan debt is a crisis that affects everyone and attracts level-headed policymakers of different political persuasions.

“You do stand to see longer-term negative effects on people who can’t pay off their student loans,” said Federal Reserve chair Jerome Powell, a conservative Republican economist. “It hurts their credit ratings; it impacts the entire half of their economic life.

“As this goes on, and as student loans continue to grow and become larger and larger, then it absolutely could hold back growth,” Powell added.