The escalating cost of a college education and the resulting debt burden too many young people take on to get that education creates a dilemma that goes well beyond the plight of students. By sending into the world a generation of college graduations too overwhelmed with debt to buy homes or even cars, the twin scourge of high cost and high debt threatens to put the breaks on an already struggling economy. This problem is everybody's problem.
This week, the U.S. Senate is expected to take up a bill filed in May by Senator Elizabeth Warren, a Massachusetts Demo crat, that throws a lifeline to financially struggling students. The Bank on Students Emergency Loan Refinancing Act would allow students to refinance their debt at the lower interest rates offered to new borrowers. In so doing, the bill, which President Obama is expected to endorse Monday, addresses the government profit-making on student loan interest.
The outstanding debt on student loans is now more than $1.2 trillion, with seniors who borrowed to earn bachelor's degrees holding a balance of just under $30,000. With jobs scarce and salaries stagnant, the interest on those loans prevents many students from getting any traction on whittling down the balance. With parents not always in a financial position to help, one in seven borrowers is now defaulting on federal student loans.
The legislation would allow student loan borrowers to refinance their loans at the lower rates now being offered to new federal borrowers. Financing comes through enactment of the so-called Buffett Rule, named after billionaire Warren Buffet who famously observed that he was taxed at a lower rate than his secretary. This calls for increasing the income tax rate of Americans earning more than $1 million annually, providing money, much of it gained through the exploiting of tax loopholes, that can be used to get students out of debt, boosting the economy as well.
A General Accountability Office report released in January determined that the federal government stood to profit roughly $66 billion from the interest on loans issued between 2007 and 2012. Plainly, government should not be bleeding dry the students who are trying to prepare themselves to become taxpaying contributors to the nation's economy. By reducing debt, the Loan Refinancing Act gets the federal government out of the business of profiting from college loans.
Critics of the Warren legislation have taken issue with both the size of the debt facing students and the amount of government profit on that debt. The dispute is primarily a matter of accounting based on differing interpretations of the risk standards established to protect taxpayers from loan defaults. But while there may be disagreement on the size of the profit, what matters most is that all parties acknowledge that government profited from student loans each of the last three years -- and there is no disputing that the loan debt problem is getting worse. As of Friday, 30 groups across the nation had endorsed the legislation.
In a speech on student debt at Suffolk University in April, the senator declared that the students impacted "worked hard to learn new skills that will benefit the country. ... They deserve our support, not an extra tax for trying to get an education." Republicans, who have decried student debt without offering a way to address it, should certainly be able to back a proposal that addresses what is in essence an unfair tax afflicted by "big government." A companion bill has been introduced in the House by Representative John Tierney, a Massachusetts Democrat.
The plan doesn't attempt to address the underlying issue of outrageous and escalating tuition costs, which Ms. Warren will surely get to. Addressing high tuition costs and student loan rates fit securely in the senator's overall agenda of fighting for economic fairness. That's a fight every American regardless of political party can and should support.