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Rob Horowitz: Congress Should Keep A Lid On Student Debt

Tuesday, June 04, 2013

 

It’s Groundhog Day on student loans. In an echo of last summer’s debate, if Congress does not act by July 1, the rate on subsidized Stafford loans will double from 3.4% to 6.8%. This will saddle 7 million people nationwide and 45,000 Rhode Island students with an even higher student loan tab.

Last year, House Republicans agreed at the last minute to a one-year freeze in student loan rates, bowing to election year pressure driven by an aggressive White House push featuring speeches by President Obama on key college campuses, among other activities.

This time, House Republicans are pushing their own proposal for a more permanent solution that would result in a substantial increase in student loan rates over time. President Obama and our Senator Jack Reed have each put forward their own comprehensive proposals—both of which would result in significantly lower rates than the House Republican proposal. President Obama’s proposal also gives students an option to cap repayments at 10 percent of annual income.

With the July 1 deadline approaching the two sides are currently deadlocked. As a result, President Obama and Senator Reed support a two-year freeze on subsidized Stafford loans in order to prevent already high student loan bills from being boosted unnecessarily and to give the breathing room needed to reach a long-term solution. This interim proposal is moving forward in the Senate, but so far the House Republican leadership is opposing it.

The debate over student loan interest rates is fueled by the dramatic and dangerous increase in overall student loan debt. It is now more than $1 trillion, exceeding credit card debt. Not surprisingly, the default rate is high and rising, serving as a drag on the economy, wrecking potential new home buyers’ credit ratings and creating a new source of potentially exploding government debt.

More specifically, a record one-in-five American households hold student loan debt, a percentage that has more than doubled over the past twenty years, according to a 2012 analysis by the Pew Research Center. Even more troubling, 40 percent of households led by someone under the age of 35 have student loan debt. The average amount of debt is close to $27,000 and one-in-ten owe more than $61,000.

The explosion of student loan debt is a result of a precipitous and unsustainable rise in college tuition. Over the past 25 years, college costs have increased by more than 500 percent. The cost of college is a major impediment to increasing the college completion rate—a must at a time when increased education and skills is the key to individual success and to our ability to compete in a tough global economy where capital is increasingly mobile.

Of course, the solution to the fundamental question of college affordability goes well beyond the interest rate paid on student loans. It requires colleges and universities to seize the opportunities created by the ability to maximize the use of online learning to create a more cost-effective new educational model.

And there is beginning to be fitful progress towards that end. The introduction of Massive Open Online Courses (MOOC’s) in which noted professors provide open access to courses for everyone is an exciting new development. Through new organizations such as Coursera and Edx as well as on their own, more colleges and universities are now offering online courses for credit. There is also much ongoing experimentation with so-called "blended courses" that combine online instruction with in-person discussion groups and reviews of material.

This adaptation of new technology has the potential to bend the college cost curve making college broadly affordable once again and to improve learning. But there is still a long way to go before this achievable dream becomes a reality.

So, in the meantime, we need to do everything we can to keep a lid on student debt. That begins with Congress adopting the two year freeze on student loan rates before July 1.

Rob Horowitz is a strategic and communications consultant who provides general consulting, public relations, direct mail services and polling for national and state issue organizations, various non-profits and elected officials and candidates. He is an Adjunct Professor of Political Science at the University of Rhode Island.

 

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