By Scot Ross
Via Milwaukee Journal Sentinel
Now that the U.S. Senate has acted on a deal to temporarily lower the interest rates on some new federal student loans, and an agreement with the House of Representatives seems imminent, some among the political and pundit class seem ready to declare the student loan debt crisis solved.
Nothing could be further from the truth.
Under the plan adopted by the Senate, interest rates for borrowers using federal Stafford loans in the fall would be set at 3.86% for undergraduates, 5.41% for graduate students and 6.41% for parents. For now, these rates are below the 6.8% that they had risen to on July 1. However, the interest rates will be allowed to rise, in some cases as high as 10.5%, based on the economy.
For future borrowers, the deal falls short because instead of closing corporate tax loopholes today, interest rates are allowed to rise. In fact, they are projected to exceed the 6.8% they are at today within five years, costing borrowers billions more in interest.
And there is nothing to addresses the $1.2 trillion student loan debt crisis that currently burdens our economy and the finances of over 37 million hardworking Americans.
Student loan borrowers have done the right thing. They've worked hard and taken on the responsibility of paying for the education or job training they need to get ahead.
They are not asking for a bailout. But they deserve a system that treats them fairly and doesn't turn their hard work and education into a multi-decade debt sentence instead of the path to the middle class.
Right now, American families are increasingly being squeezed by skyrocketing tuition and a system in which big banks and the federal government make billions in profits from the interest on their student loans.
State and federal government have made deep cuts in higher education funding, resulting in tuition and the average amount of student loan debt doubling over the past 12 years.
Banks that can borrow money from the Federal Reserve for less than 1% are charging student loan borrowers 12% and more for loans. And the federal government is projected to earn over $50 billion from the interest on student loans next year alone.
Yet, almost unbelievably, student loan borrowers are prevented by law from refinancing their debt.
The result is that student loan debt is now the second biggest consumer debt in the country, more than credit cards and auto loans. Only mortgage debt is higher.
In her speech during the Senate debate on the student loan interest rate legislation, Sen. Tammy Baldwin (D-Wis.) was right on when she said higher education and job training ought to be a path to the middle class, not a path to indebtedness.
To ensure that the promise of a more secure economic future offered by higher education and job training is preserved, we need action on common-sense solutions today. We ought to allow people to refinance their student loans, like they can a mortgage, deduct the interest on their student loans from their taxes and limit tuition increases to the rate of inflation.
Our leaders in Washington, D.C., and in Wisconsin must recognize the clear and present danger of student loan debt to our economy and the hopes and dreams of millions of hardworking Americans. Without a sense of urgency and action on real, comprehensive solutions, we run the risk of seeing the $1.2 trillion student loan debt crisis become a $2 trillion economic catastrophe.
Scot Ross is executive director of One Wisconsin Now and One Wisconsin Institute. Research conducted by the One Wisconsin Institute found that in Wisconsin and nationally borrowers are paying off their student loans for nearly 20 years and that debt has a significant, negative impact on the state and national economy.