In the American Interest

     Congress recently kicked that dog student loan debt down the road, allowing the interest rate on new subsidized Stafford loans, the most common type of federal loan, to double to 6.4 percent.
     Student debt is close on the heels of mortgages as the largest chunk of household debt for Americans.
     The Project on Student Debt estimates that 66 percent of college seniors who graduated in 2011 owed an average of $26,000 on student loans.
     Student debt has surpassed credit card debt in the United States. It is estimated at about $1 trillion, up from $550 billion in 2008, according to Congress’ Joint Economic Committee.
     As bad as the interest rate hike sounds, President Obama claims it will cost students only an extra $1,000, or $7 a month over the life of a loan.
     The real issue is states cutting education funding, which forces colleges to raise tuition and students to take out higher loans to pay for a degree.
     Texas, for instance, cut $5.6 billion from education in 2011. The state’s Republican-led Legislature saved some face in this year’s session by restoring $4 billion of that amount. But such reductions translate to less skilled workers to power our economy in the future.
     The cuts also compel schools to search for other funding sources to get students in their classrooms.
     Sal Loria, the University of Houston’s director of financial aid, said his staff tells students to be wary of loans.
     “We advise students to use loans as a last resort to meet their education expenses and stress the importance of finishing your degree within four years or as soon as possible to reduce the necessity to borrow more funds,” Loria said in an email to Courthouse News. “We are constantly working with students to seek out free sources of aid to reduce the need to take out loans.”
     The strategy seems to be working, Loria said: “The average total indebtedness for all students graduating from UH in the fall of 2011 was approximately $15,600, which is below the national average. Last year, 26 percent of all graduates from UH paid less than $10,000 for their degree.”
     Other colleges, and Congress, should follow UH’s lead. How about a 10 percent reduction of loan debt for students who graduate in four years, or extending the repayment deferment from six months to one year after graduation?
     Another widely discussed solution is to make it easier for people to discharge student loan debt in bankruptcy.
     Cedric Bandoh, the University of Houston’s student body president, said student debt is a drag on the economy.
     “I think it should be easier to discharge student loan debt in bankruptcy because student loan debt holds a lot of folks back in terms of making vital purchases, such as buying a car or getting a mortgage, that not only adversely affects the individual but our economy as well,” Bandoh, a business administration major, said in an email.
     Houston attorney Emil Sargent said skyrocketing student loan debt has been on his radar since bankruptcy became his specialty in 1996.
     “There are some people that I represent that have student loan debt that is never ever going to be paid for,” Sargent said. “And I don’t know what Congress is going to do about it, if anything. …
     “Right now you cannot discharge student loan debt unless you can demonstrate to the court that you suffer from some type of hardship which would prevent you from paying it off. But I think as time passes they may come up with a system to where you can maybe discharge 25 to maybe 50 percent. Now that’s just me speculating.”
     Members of Congress have promised to restore the Stafford loan interest rate to 3.4 percent when they return from the July 4th holiday.
     While it is important to get the interest rate in check, Congress should also focus on the bigger issue – escalating tuition costs.

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