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Will loan forgiveness offer long-term student debt solution?

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    Student debt in America has more than tripled in just the past decade, and experts say too much debt can put a crimp on graduates’ futures. It’s an issue that Democrats, particularly the president, have targeted for new remedies. It was the focus of his latest executive action today.

    It’s the season for pomp and circumstance, triumphant graduations, cap-tossing, and a reminder that, although college may be over, the bills are just now coming due.

    The average student who graduated last year had nearly $30,000 in student loan debt. Today, in the White House East Room, President Obama signed an executive order that would allow borrowers who took out federal loans prior to 2007 to tie their repayments to their incomes.


    Let’s be honest. Families at the top, they can easily save more than enough money to pay for school out of pocket.

    Families at the bottom face a lot of obstacles, but they can turn to programs designed to help them handle costs, but you have got a lot of middle-class families who can’t build up enough savings, don’t qualify for support, feel like nobody is looking out for them.


    The program would expand on 2010 law that capped federal loan repayments at 10 percent of their monthly income, while allowing low-income borrowers to have their loans forgiven after 20 or 25 years of on-time payments.

    The White House says up to five million former students would benefit, providing a boost to the overall economy. The president also cast his plan in political terms, challenging Republicans to support him.


    If you’re a big oil company, they will go to bat for you. If you’re a student, good luck.


    Americans are now carrying student loan debt of over $1 trillion, $125 billion of it added just in the first three months of this year.

  • Some Republicans criticized the president’s plan today. Senator Lamar Alexander of Tennessee told The Wall Street Journal:

    “I still haven’t found the authority for the president to do this. And there’s very likely to be a cost in this and we need to know what it is.”

    So what, if anything, could this approach do to help ease the growing problem of student loan debt?

    For that, we turn to Deanne Loonin, who leads the student borrower program at the National Consumer Law Center. And Richard Vedder, professor of economics at Ohio University and director of the Center for College Affordability and Productivity.

    Professor Vedder, today, I was talking to a recent college graduate who says she owes $100,000 in school loans. She just graduated last year. How deep, how wide is this problem?

  • RICHARD VEDDER, Ohio University:

    Well, that’s a little atypical for an undergraduate to graduate with $100,000 in debt, but it is a significant problem when you have 40 million Americans having debt to the government, and this debt now is greater than the debt on car loans, on credit cards, home equity loans.

    This is the largest form of debt in the United States, except for home mortgages. So it’s become a widespread issue, and it’s not surprising that it’s surfacing as a political issue in this election year.


    Deanne Loonin, does this solution that the president’s proposing that has been in place for some college graduates or for the last several years, is that shifting the burden from the student to the taxpayer?

  • DEANNE LOONIN, National Consumer Law Center:

    No, I wouldn’t look at it that way.

    I think that it’s actually a very good investment in students, so that students are more likely to succeed, and when students after college are more likely to succeed, that benefits taxpayers, it benefits society, it benefits everyone.


    But you heard what Senator Alexander said about the cost and the White House said today, we’re still doing rule-making, we don’t know the costs yet.

    But given what we have done — what they have done so far, is there a way to put a price tag on something like this?


    Well, there may be some additional short-term costs and I think that we want to hear more about that.

    But again I think that we need to look at the cost issue in a more comprehensive way. If these borrowers are more able to handle their debt burdens better, and they’re more likely to succeed, that’s an investment in students, an investment in student borrowers, and, frankly, instead of money going to the private contractors, private servicers to collect them from those borrowers if they’re so financially distressed that they can’t afford their payments.


    Professor Vedder, how much a bite would this approach take out of the problem?


    Well, I think this is not dealing with the real root cause of the problem.

    The real root cause of the problem, the reason there’s so much student debt, over $1 trillion to begin with, is that tuition fees and college costs in general have been rising almost exponentially and at an ever faster rate of increase in the last several decades.

    This is dealing with — is not dealing with the problem in a fundamental sense. It’s a panacea that is addressing the short-run problems of people who are distressed. It’s not dealing with the long-term problem of how we get out of this mess which is still growing and will continue to grow. And this does nothing to stop that.


    Deanne Loonin, what about that? If the costs keep going up, what’s the point in just forgiving loans?


    Well, absolutely right that it’s not the entire solution. It’s a piece of the puzzle, but that doesn’t mean that we should not try to put that piece of the puzzle in.

    Borrowers are suffering now. Students are having trouble with the debt-to-income ratios, with the draconian collection powers that the government has. We need some relief for borrowers now. And the president is taking this step to do it. But there is certainly more to be done, including more accountability from the schools themselves to help keep costs down.


    Well, let’s talk long-term solutions, Richard Vedder. what do you suggest?


    Well, I would agree with the last comment that she made, that Deanne Loonin made, that maybe it’s time for the colleges to have some skin in the game, so when they have high default rates among their graduates, for example, the colleges themselves perhaps should help pick up some of the costs.

    Frankly, I think we’re having a problem where in some ways we’re not underinvested in higher education, but overinvested. We have lots of students graduating from college today that are underemployed. They’re taking jobs paying relatively low wages, and we have a serious problem there.

    None of this is dealing with any of that. And so I have some concerns that we are dealing with the symptoms, but not really with the real problem or the real disease, as it were, and we need to address that. And part of the problem is the student loan program itself.

    The student loan program enables colleges to raise their tuition fees. And it almost invites them to raise tuition fees, creating an academic arms race, which I think has become very costly, very inefficient and very harmful, particularly to lower-income people.


    Well, Deanne, that’s a lot to bite off, but we were just talking in the Veterans Affairs segment about reverse incentives. I wonder if that’s what we’re seeing here, that after a while, you keep saying to people, as long as you — we will forgive your loans, you won’t have to pay more than a percentage of your income to repay them, and then you borrow more and more and more.

    Is that the larger long-term problem?


    Well, we work with borrowers here in Boston, in Massachusetts, and we don’t see that problem.

    That may be a problem in some ways. But these are people, for the most part, individuals who are trying to better their lives, trying to borrow — trying to better their family’s lives. And we want to make sure that there is access to that opportunity for as many people as possible.

    Yes, there’s responsibility on the part of the borrowers, but right now basically all of the risk is falling on the borrowers, so the idea here is more risk-sharing. Let’s get the institutions more accountable. Let’s get the private contractors that are profiting from the system more accountable, and look at the costs in that way, more holistically.

    And if you look at it that way, as an investment in our future, then I think it’s really a very good investment.


    So you don’t think the investment, as Professor Vedder is suggesting, is misplaced?


    No, I don’t.

    I do think, again, that there’s a lot of schools that have not — there’s not been enough oversight, they don’t have good outcome measures, they have too many students who are defaulting or delinquent on their loans. So let’s make sure that those schools are accountable. And if they have some other standards where we want to make sure that they’re admitting students who are likely to succeed, and there are ways to deal with that problem front on, but we don’t want to have that impede opportunity for the most vulnerable borrowers and, frankly, for borrowers and their families in general.


    Deanne Loonin of the National Consumer Law Center, and Professor Richard Vedder of Ohio University, thank you both very much.


    Thank you.


    Thank you.

  • PBS NewsHour coverage of higher education is supported by the Lumina Foundation and American Graduate:

    Let’s Make it Happen, a public media initiative made possible by the Corporation for Public Broadcasting.

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