Student Debt Is a National Emergency

By Elizabeth Warren, Reader Supported News

03 June 14

otal student loan debt across the country now stands at $1.2 trillion - and each year, students are taking on more and more and more debt. From 2004 to 2012, the average student loan balance increased by 70 percent. Millions of young people are struggling to keep up with their student loan payments.

This is an emergency. Student loan debt is crushing our young people and weighing down our economy. Federal agencies like the Federal Reserve, the Treasury Department and the Consumer Financial Protection Bureau are already sounding the alarm. Every day, student loan debt stops more and more young people from moving out of their parents' homes, from saving for a down payment, buying homes, buying cars, starting small businesses, saving for retirement or making purchases that grow our economy.

It doesn't have to be this way. Congress set artificially high interest rates on student loans that generate extra money for the government. Student loan rates are double, triple or even quadruple the amount needed to cover administrative costs, the cost of funds and bad debts. The Government Accountability Office (GAO) recently projected that just the slice of federal student loans issued between 2007 and 2012 will generate $66 billion in profit for the government. This is fundamentally wrong. The government should not charge inflated interest rates in order to make big profits off the backs of our students.

Last week, we introduced the Bank on Students Emergency Loan Refinancing Act with dozens of our colleagues in the United States Senate and House of Representatives. The idea is simple. With interest rates near historic lows, homeowners, businesses and even local governments have refinanced their debts. But many people who took out undergraduate student loans before July 1 of last year are locked into interest rates of nearly 7 percent. Older loans run 8 percent, 9 percent and even higher.

Bank on Students would allow student loan borrowers the opportunity to lower their interest rates on old loans to match the rates that the government offers to new borrowers today: 3.86 percent for undergraduate loans, 5.41 percent for graduate loans and 6.41 percent for PLUS loans.

In our view, these rates are still too high, but this legislation is an important step in the right direction. Forty million Americans have student loan debt, and millions of those individuals could save hundreds or even thousands of dollars a year under this proposal. They need this help right away.

Last year, nearly every Republican in Congress - in the House and the Senate - voted for the exact same loan rates that are in this legislation, but the rates apply only to new borrowers. Democrats and Republicans should be able to agree on this. If Republicans believe these rates are good enough for new borrowers, then they should be good enough for all the existing borrowers who also worked hard to get an education and are trapped with loans that have sky-high interest rates - some as high as 13 or 14 percent.

But if the moral imperative to act isn't sufficient, we should consider the benefits to the economy from allowing students to refinance their loans. The Center for American Progress examined refinancing and put forward an estimate that indicates refinancing for only those federal student loans with an interest rate above 5 percent could inject as much as $21 billion into the economy in the first year alone.

This legislation won't add a single dime to our deficit. The Bank on Students legislation adopts the Buffett rule, which limits tax loopholes for millionaires and billionaires and requires that every dollar we bring in as a result of that change goes directly to supporting lower interest rates on existing student loans. It is simple: invest in billionaires or invest in students.

Refinancing won't fix everything that's broken with our higher education system. We need to bring down the cost of college, and we need more accountability for how schools spend federal dollars. But the need for comprehensive reform must not blind us to the urgency of addressing the massive debt that's already crushing our young people.

This is a question of economics, but it is also a question of values. Young people saddled with student debt didn't go to the mall and run up charges on a credit card. They worked hard and learned new skills that will benefit this country and help us build a stronger America. They deserve the opportunity to get an affordable education and start their careers without being burdened by unmanageable debt. We urge Congress to pass the Bank on Students Emergency Loan Refinancing Act to give all of our students a fair shot.