TOPICS > Economy

Student Loans: the Politics, Pitfalls and Payoffs

April 27, 2012 at 12:00 AM EDT
Ignoring a veto threat by President Obama, House Republicans voted Friday to extend a 2007 provision that halves the rate on Stafford student loans, but the parties are split on how to pay for it. Jeffrey Brown, George Washington University's Sandy Baum and author Anya Kamenetz examine the political debate over college tuition.

JEFFREY BROWN: House Republicans staked their ground today in the political fight over student loans. It set up a confrontation with Senate Democrats, and possibly with the president.

REP. JOHN BOEHNER, R-Ohio: Vote yes on a final bill. Let’s send it over to the Senate now.

JEFFREY BROWN: The vote this afternoon was 215-195 to keep interest rates on federal student loans from doubling. Republicans had called the vote with just 48 hours’ notice, under fire from Democrats. But leaders of both parties agreed on the goal.

REP. NANCY PELOSI, D-Calif.: I think we all agree that the greatest thing the country can do and that a family can do is to invest in the education of the next generation.

REP. JOHN BOEHNER: We believe that we shouldn’t put students at risk and that we ought to make sure that their interest rates don’t go up.

JEFFREY BROWN: The issue goes back to 2007, when Congress cut the rate on so-called Stafford loans in half to 3.4 percent. That provision is set to expire July 1, affecting 7.4 million students from low- and middle-income families.

Fixing the problem would cost nearly $6 billion for one year, and that’s where the two parties split. Republicans wanted to draw from what they called a slush fund, money set aside for preventive health under the health care reform law. Democrats said the move would gut breast cancer screening and similar services.

Wisconsin’s Gwen Moore.

REP. GWEN MOORE, D-Wisc.: When we look at this health care fund that they want to gouge, it’s because health care is one of the issues that women most care about.

JEFFREY BROWN: Republicans pointed out that President Obama’s budget called for cutting the same fund to pay for other priorities. And House Speaker John Boehner rejected any talk of a — quote — “war on women.”

REP. JOHN BOEHNER: And now, now we’re going to have a fight over women’s health. This is the latest plank in the so-called war on women, entirely created — entirely created by my colleagues across the aisle for political gain.

JEFFREY BROWN: In the end, all but 30 Republicans voted for the bill; all but 13 Democrats voted against.

White House officials said today the president would veto the House bill if it reached his desk. But the bill has little chance in the Senate. Democrats hold the majority there, and they want to pay for the student loan fix with higher taxes on high-income owners of private corporations.

The president has endorsed that approach, talking up the issue on college campuses. Republican challenger Mitt Romney also says he favors keeping the current low rates, but he has not said how he’d pay for it.

Meanwhile, student loan debt exceeded credit card debt last year for the first time. The average debt-holder in the class of 2011 owed more than $27,000.

And we explore the rising level of college debt underlying this political debate now with Sandy Baum, senior fellow at the George Washington University Graduate School of Education. She also writes an annual booklet called “Trends in College Pricing.” And Anya Kamenetz, author of the books “Generation Debt” and “DIY U.”

Well, Anya Kamenetz, I’ll start with you.

Give us some context for this political fight. We say that student loan debt exceeded credit card debt. How big a problem then are we talking about today?

ANYA KAMENETZ, author, “Generation Debt”: Well, you mentioned the average figure, $27,000 a year for the class of — sorry, $27,000 for the class of 2011.

This has been growing every single year right in lockstep with tuition. And it’s something where families and students facing the tough job market that they are, are really starting to question the value of their degree when it comes with these large loan payments.

JEFFREY BROWN: Sandy Baum, what would you add to that, and who is — who’s most affected?

SANDY BAUM, George Washington University Graduate School of Education: Well, Anya’s right to focus on the amount that individual students owe, not on whether the aggregate amount of debt is greater than say credit card debt.

JEFFREY BROWN: Why is that?

SANDY BAUM: Well, because what matters is whether individual students can manage their loan payments.

And the fact that is for most college graduates, $27,000 is fine. What we need to worry about is that there are many students, too many students, who borrow much more than that who don’t finish their degrees, who can’t get a job, who have real trouble paying back their loans. We need to focus on those students.

JEFFREY BROWN: Is that aggregate number just even helpful as focusing. . .


JEFFREY BROWN: No, not at all, not even to focus the attention?

SANDY BAUM: It has focused attention, but it makes it seem as though student loans themselves are a problem. Student loans are great for many people. They allow people to go to college who couldn’t otherwise go, make that great investment in themselves.

But when they are too extreme, they do cause serious problems for students.

JEFFREY BROWN: Now, Anya Kamenetz, just to fill in the picture a little bit more, the Stafford loans that are under debate in the House now, who are they aimed at? Who would they — who would most be affected by a change in the rates?

ANYA KAMENETZ: Well, the Stafford loans, they’re all directly from the U.S. government. And they are about 80 percent of all student loans.

So anybody who goes to college can be eligible for these loans, either subsidized or unsubsidized. But the problem is that the limits are too low to pay for college in a lot of cases, so a lot of people are piling private loans on top of that.

JEFFREY BROWN: And staying with you, so just to fill in the picture even more, students have access to these loans, federally subsidized loans, but also to the private market as well?

ANYA KAMENETZ: That’s exactly right.

So if the federal loan limit they find to be too low, a lot of people turn to the private loans, which have interest rates that go far beyond the 3.4 percent or the 6.8 percent to 10 and 15 percent.

JEFFREY BROWN: So, Sandy Baum, when you talk about particular students or subsets of this aggregate, who are you most worried about?

SANDY BAUM: Well, one group of student is those who are relying on these private student loans.

I think many students don’t understand that federal loans come with a lot of protection. If you can’t afford to repay them, you actually don’t have to. But if they go to the bank or Sallie Mae and take a private loan, those loans are very, very risky.

And there are some students who are going to institutions that have very high tuition and making them borrow all they can borrow. That’s a serious problem.

JEFFREY BROWN: What else do you worry about, what other subsets?

SANDY BAUM: Well, there is a subset of students — students who go to for-profit institutions are much more likely to borrow and to borrow more than students who go to public or private non-profit institutions. They also tend to be low-income students. And those students are frequently at great risk.

JEFFREY BROWN: Anya, what would you add to that in terms of which groups you worry about most?

ANYA KAMENETZ: Well, I mean, just as Sandy is saying, you have to underline the fact that out of the for-profit colleges, they’re producing almost 50 percent of all the people that default on their loans, even though is a much smaller percent of actual students.

So any college that has tuition that doesn’t match the outcomes that they are able to promise the students is really putting students in a serious bind.

JEFFREY BROWN: So, some — trying to parse this, Anya, some people are getting — are sort of forced into these situations and some people are kind of getting themselves into the situation?

How do we think this through?

ANYA KAMENETZ: Well, it’s a very tricky matter to try to assign blame here. I mean we’re talking about 18-year-olds who are making lifetime decisions, right?

So the question is, is the major that you are choosing at the institution that you are choosing, is that going to be adequate to pay for the loans that you’re taking out? And, you know, a very easy example to take is law students and medical students. Each of them borrow on average $100,000 to go to school, but they are going into a very high-paying profession.

However, if you are going, for example, to a private culinary school many of those might charge $47,000 a year, $40,000, $50,000 a year, and they are outputting you into the restaurant industry. So it is not the same kind of earning potential there and maybe not the best choice.

JEFFREY BROWN: How do you think about this question?

SANDY BAUM: Well, one issue is that many of the students who are overborrowing are actually adults. So the amount that you can borrow from the federal government depends on whether you are dependent on your parents or whether you’re older.

Older students can borrow more than younger students. And they do end up with much higher levels of debt. And, of course, they have less time to pay off that debt because they’re already older. So it is a serious problem for people who don’t have the accurate information, don’t get the right advice, and then don’t even know how to take advantage of the protections that are in existence to help people repay their federal loans.

JEFFREY BROWN: Now, one of the discussions that’s been actually long discussed — and, Anya Kamenetz, I’ll start with you — is this notion of some form of student debt forgiveness.

What are the pros and cons? Just explain to us what the debate is about there.

ANYA KAMENETZ: Well, there is a bill in Congress right now that would make student loan debt forgivable after 10 years.

And the pros, you know, there’s about 700,000 people that have signed a petition on about this. And people say this would stimulate the economy. It would relieve an unfair burden on many borrowers. But, of course, the cons are people talk about this being a basic issue of fairness, that student borrowers, college students at large are a relatively privileged sector of our society, and is it really fair to zero out all of their loans en masse, or should we apply a little bit more discretion in figuring out who, as we say, is unfairly burdened by the loans or doesn’t have any hope of paying them back, vs. just writing off everyone’s debt?

JEFFREY BROWN: What would you add to that?

SANDY BAUM: We already have a lot of loan forgiveness in place. If you’re in a public service occupation for 10 years, you will get your loan forgiven.

If you can’t afford to pay back your loan, if you borrowed so much in federal loans that your income doesn’t support the repayment, you don’t have to pay until your income exceeds 150 percent of the poverty line. If you haven’t paid it back after 25 years, it will be forgiven.

So forgiving everybody’s student loans just — student loans makes no sense at all. College graduates are in fact a very privileged group of people. Higher-income people are more likely to go to college, more likely to finish college. And then, after they finish college, they have much higher earnings than people who didn’t go to college.

JEFFREY BROWN: Just one more question, Anya Kamenetz, coming back to where we started, the political debate. You both watched this, the politics of this. Is it any surprise that this issue is a — is now a political football and likely to be through the campaign?

ANYA KAMENETZ: No. I mean, I think this is going to return over and over.

And the solutions that they were talking about now is really far too small. I mean, keeping the interest rates down is not going to address the problem. We need a more holistic solution that addresses college costs. The programs that Sandy is talking about, income-based repayment and public service loan forgiveness, are very important, but they’re also very undersubscribed.

And so there needs to be a lot more public information, a lot more discussion before this problem gets solved.

JEFFREY BROWN: All right, Anya Kamenetz and Sandy Baum, thank you both very much.

SANDY BAUM: Thank you.