Lawmakers see different fixes for student debt
When it comes to student loan debt, Oshkosh’s representatives on Capitol Hill agree on at least one thing: it’s a problem.
U.S. Sens. Tammy Baldwin and Ron Johnson are both concerned that student debt has ballooned to crisis-level proportions. They both said higher education has become unaffordable and students are taking on too much debt.
That, howwever, is where the agreement stops between the ideologically opposed senators both on the big picture and on a more narrosly focused Senate vote last week. Baldwin supported an unsuccessful measure to extend the 3.4 percent interest rate on subsidized Stafford student loans rates for another year, while Johnson voted against it.
If Congress can’t reach an agreement, millions of students returning to campus next month will find borrowing terms twice as high as when school let out. Without congressional action in the coming weeks, the doubled interest rate could mean an extra $2,600 for an average student returning to college this fall, according to Congress' Joint Economic Committee.
“This is a piece of a larger crisis that we face as a nation,” Baldwin said. “The immediate issue is the doubling of the Stafford rates The larger issue is ensuring that higher education is a path to the middle class and not a path to indebtedness. That means making education affordable.”
More than 37 million borrowers in the U.S. have outstanding student loans today, according to the Federal Reserve Bank of New York. About $864 billion of that debt is outstanding federal student loan debt, with about another $150 billion in outstanding private student loans, according to the Consumer Finance Protection Bureau.
Baldwin said Congress needs to embark on a big-picture solution in the fall, when it is expected to take up an overhaul of the Higher Education Act. That discussion is an opportunity for lawmakers to restate their commitment to the idea that investment in education is an investment in a “more robust economy and a more vibrant democracy,” Baldwin said.
From Johnson’s perspective federally subsidized loans are, in many ways, at the root of the problem. By subsidizing student loans, the federal government has enticed young people to incur debt, Johnson said.
“I would like to see the federal government get out of these entirely … and have these student loans floated on the private market,” Johnson said. “I don’t think it’s a good idea to be subsidizing interest rates. I think it entices students to go into debt.”
A larger conversation needs to take place, Johnson said, that examines how colleges spend their money. In addition, he said, the government needs to implement policies that grow the economy and create job opportunities for college graduates.
“We’ve taken a worthy goal of making education accessible, and we’ve had the negative, unintended consequence of making college less accessible because we’ve made it less affordable,” Johnson said.
Still, Johnson said, he and like-minded Republicans are willing to work with the White House on a solution that would link interest rates to the financial markets and reduce Congress' role in setting students' borrowing rates. If students are upset that the new loans they take out could have double the rate they received last year, they have Senate Democrats to blame for turning the vote into a political issue, Johnson said.
Britney Deruchowski, a graduate assistant in the College of Business at the University of Wisconsin-Oshkosh with more than $32,000 in subsidized and unsubsidized loans, along with one Parent Plus loan that her mother took out, said she thinks tying interest rates to market trends is risky. Deruchowski said it would be difficult for her to plan and budget if she is unsure of the interest she will pay from year to year. She said she would prefer a fixed-rate loan capped at 3.4 percent or lower — much like the proposal Senate Democrats championed — rather than chancing it to the market.
Noah Walker, a fifth-year student working toward a bachelor’s degree in psychology after earning an associate’s degree and transferring to UWO, said she thinks she will have taken out $57,000 in federal loans by the time she graduates. Because of health problems and other circumstances, Walker said she would not be able to attend college without loans.
“I kind of feel like it’s the dark cloud hanging over my head that I’m pretending isn’t there, because I don’t have to repay them yet … but as time goes on, interest rates get higher,” Walker said. “I don’t know how I’m going to take care of this when I graduate.”
Making repayment affordable is U.S. Rep. Tom Petri’s main goal with his Earnings Contingent Education Loans, or ExCEL, Act. The proposal includes a market-based interest rate structure that follows the 10-year Treasury rate, and Petri said he and its cosponsors hope it will be on the agenda this fall. His proposal would make income-based payment universal for federal college loans, limiting repayment to no more than no more than 15 percent of income after an allowance for basic living expenses.
Payments would be less of a burden for those who have not found work or who are making little money, and would be higher for those with higher incomes, he said.
Petri said it’s preferable to set up a program that’s affordable and people can manage. The proposal has attracted some bipartisan attention; Petri introduced it with Rep. Jared Polis, a Colorado Democrat.
Regardless of how much ideologies may differ, Baldwin said she thinks it’s necessary for everyone involved to eventually come to some kind of agreement.
“I certainly believe that we have to,” Baldwin said. “I do think of this as having reached crisis proportions. When you look at the staggering debt that individuals and college graduates collectively are shouldering. At a time when we’re still recovering from a very significant recession, these decisions impact our competitiveness and they also impact the rate of our recovery.”
