Student loan debt takes political stage
| Marcus Clem reporter |
American student debtors owe a lot of money, and addressing their ability to pay is steadily gaining national attention.
There are several ideas on the table to help with what Forbes charts as the nation’s $1.08 trillion owed by college students. Nearly 12 percent of that amount is tied to accounts that are 90 days past due or in default.
“Since the recession began in 2007-‘08, this has been a challenge for our graduates and our students who leave school without graduating, as well,” said Tammy Higgins, Pittsburg State director of student financial assistance.
Higgins says that a key problem with student debt nationwide is debtors’ confidence that they will be able to handle the problem later on, even if they are not prepared.
“That’s not the best plan to make, though, as the debt creeps up on you little by little,” she said. “When it’s time to go into repayment, you might be in for a sticker shock.”
There is a light at the end of the tunnel for the people in the worst straits.
For publicly subsidized loans, which control the bulk of the debt, any unpaid amount is forgiven after 20 years. Most public sector workers can have it done after 10 years.
People who qualify for the Pay as You Go program, available since 2012, can cap their debt payments at 10 percent of their income without consequence.
“I encourage students to try to cap their loan debt at the starting salary they expect to make when they graduate or leave school,” Higgins said. “Of course, this has to be a realistic number, not what they hope to earn.”
Some banks offer to refinance loans to as low as 3.5 percent for qualified debtors, according to Time magazine.
For the most part, though, refinance without government support of student debt cuts into a lenders’ profit margin, and many are reluctant to do it.
“Because the lender cannot repossess one’s education, it is much harder to dismiss student loans,” said Kevin Bracker, professor of finance, “in order to avoid creating a situation where there is a greater incentive for default.
“That said, you cannot squeeze blood from a turnip, and some students have borrowed more money than they can afford to repay. Under this situation, it may be better for all involved to have a mechanism that allows for a remedy…”
Such a solution is making waves in the U.S. Congress.
Massachusetts Democratic Sen. Elizabeth Warren backs a proposal to sponsor student-debt refinancing for up to 25 million people to the current federal subsidized-loan rate of 3.4 percent. However, Higgins says, that would cost the government $58 billion over 10 years.
The idea’s opponents howled over the tax hikes Warren backed as a way to pay that bill, and Sen. Pat Roberts and Sen. Jerry Moran, both Republicans who represent Kansas, participated in a successful vote to block its passage.