Will Congress Turn Its Back On Students?

Career College Central summary:

  • More than 40 million Americans now hold student loan debt, amounting to a total of $1.2 trillion. Each year, that number swells. Last year’s average borrower finished college owing more than $26,000; this year, that number is projected to be higher.
  • Seven million Americans are currently in default on their loans. They are afforded few protections. While most debts, such as property foreclosures or credit card debts, can be canceled with a declaration of bankruptcy, doing the same for student loan debt is virtually impossible. Borrowers who default face penalty fees, suspended professional licenses, and the garnishing of wages and disability benefits, even without court orders. For people like Becky, there is no way out.
  • President Obama has positioned himself as a defender of vulnerable student borrowers. In 2010, he championed legislation that phased out the use of private lenders like Sallie Mae to administer federal loans. The White House projected that removing these middle-men would save $68 billion over the following 11 years. The understanding was that those savings would be passed to students and, in theory, the legislation was a step toward that goal.
  • But in practice, savings are reverting to the government, not borrowers like Becky. Federal loans are projected to generate about $185 billion for the government over the course of the next decade. Averaged annually, those earnings would rank the federal student loan program among the 20 most profitable companies in the world.
  • President Obama  has promised a new system that rates colleges on “affordability and value” and ties federal aid to those ratings. The proposal is controversial among academics fearful of losing resources, but it could introduce desperately needed incentives for affordability. Neither ratings nor changes in federal aid have yet come to fruition.
  • President Obama has engaged on the issue since, but the results have been illusory. Last July, when Congress allowed the interest rate for undergraduate loans to double, the White House helped to champion an eleventh hour fix. A new bipartisan arrangement pegged the student loan interest rate to Treasury rates, ensuring students would only pay a slightly elevated rate. But the new interest rates are variable, tied to a growing economy that could drive interest rates far beyond the doubling feared last year, up to a cap of 9.5 to 10.5%.

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