This week, the House is all but certain to pass the bipartisan-supported Senate bill which will link interests rates on federal student loans to the financial markets. This is after congressional intransigence allowed the rate to be doubled to 6.8%, earlier this month. If passed, this will give students a lower interest rate under current market conditions. However, this is unlikely to allay the fears of many students attending college in the fall.
Student debt has skyrocketed in recent years. A report released last month by the Manhattan Institute for Policy Research entitled, "Repairing America's Unhealthy Relationship with Student Debt" paints a depressing picture. Total student debt has nearly doubled, from 2007 to 2012, from $548 billion to $966 billion. Students, with diminishing jobs prospects after college, are failing to repay their debts and 6.7 million borrowers are 90 days in arrears on debt repayments. The corollary of this is a reduced ability of young borrowers to obtain credit for mortgages, according to a study conducted by the Federal Reserve Bank of New York.
The headline that drew the most media attention, of course, was the extraordinarily rare display of bipartisanship in Congress. However, the more interesting news item, which went largely unreported by the press, was the caucus of 16 Democratic Senators who voted against the bill. Led by Sen. Warren of Massachusetts, who has had a first hand experience of the worry and anxiety the current system places on students, argued:
"My colleagues who support this proposal say that it will lower interest rates for students this year, and that's all that matters. Now that's the same thing the credit card companies said when they sold zero-interest credit cards and the same thing subprime mortgage lenders said when they sold teaser rate mortgages. In all these cases, the bill comes due. Nobody disputes the fact that within just a few years, according to our best estimates, students, all students, will end up paying far higher interest rates on their loans than they do right now."
Yet, even Sen. Warren isn't addressing the fundamental issue of reducing student debt.
However, a bill passed by the Oregon State legislature earlier this month colloquially referred to as "Pay It Forward" (HB 3472), is bold in its ambition and scale. The bill proposes simply to:
"Allow students who are residents of this state, as defined by the institution, and who qualify for admission to the institution to enroll in the institution without paying tuition or fees. Provide that, in lieu of paying tuition or fees, students must sign binding contracts to pay to the State of Oregon or the institution a certain percentage of the student's annual adjusted gross income upon graduation."
This is not a universal remedy for higher education, but a step in the right direction for student financing. In a society, which continually promotes investment in higher education, suggesting that without a college degree - job prospects are grim, is encumbering some of America's poorest students with an inordinate amount of debt. Make no mistake; this is an educational crisis as much as it is a debt crisis. Many students now choose where to attend college not on the academic merits of the institution but on the level of debt they will incur. This leads to students attending substandard institutions, simply as it's more affordable.
In The Audacity of Hope, President Obama spoke personally about his own troubles paying off student debt,
"Where Americans do need help, immediately, is in managing the rising cost of college - something with which Michelle and I are all too familiar (for the first ten years of our marriage, our combined monthly payments on our undergraduate and law school debt exceeded our mortgage by a healthy margin)."
In less than thirty days, freshman students will be beginning their college experience. Oregon presents a window into what could be the future of college payment. The President should take heed of HB 3472. There's much more to be done in order to reform the higher education sector. This requires both the tenacity and determination to push legislation through a recalcitrant Congress. President Obama succeeded in raising the maximum Pell Grant award, which directly benefits 9.5 million students, back in 2010, but there's still far more that can and should be done.