Moral Bankruptcy on Student Loans

Jasmin (not her real name) is a fairly typical rising senior at Trinity Washington University. She's the first in her family to go to college. She started college at another school when she was right out of high school, but after her first semester, financial worries in her family caused her to stop out to go to work full-time while helping her mom care for her siblings. She started taking courses again at a local community college and then enrolled at Trinity where she's varied from part-time to full-time enrollment depending on her family and financial situation each semester.

A Criminal Justice major who wants a career in federal law enforcement, she is now working full-time with a federal agency where she started as an intern last year; she's so glad her internship led to the administrative job, a great change from the fast food jobs she held during her early years in college. She's always paid for college herself. She has also had the help of scholarships and loans, including federal Pell Grants and Stafford loans.

Now in her late twenties, after eight years of strenuous effort in juggling responsibilities while pursuing her college degree, she hopes to graduate in May 2014. Jasmin can't wait for graduation day when she'll triumphantly hoist her college diploma high over her head to the cheers of dozens of members of her extended family, neighbors and friends.

But now, what she's hearing about the future of federal student loans makes her worry that her dream might be delayed once again, or even vanish completely even though she's so close to the finish line.

Last week, the U.S. Senate failed to reach agreement on a plan to stop the interest rates on federal student loans from doubling, from 3.4 percent to 6.8 percent. Senator Elizabeth Warren rightfully called this failure "morally wrong." Congressional gridlock is a well known disease in this town these days, and shameful partisan politics has shut down virtually all semblance of morally sensitive public governance on the Hill.

Allowing federal student loan interest rates to double automatically because members of Congress cannot reach mature compromises on legislation of importance to millions of citizens is a grave injustice --- just one more example of the moral bankruptcy of the "take no prisoners" style of politics that infects our national legislature today. Nobody wins when Congress stalls.

Stafford loans help the neediest students in this country. Allowing the interest rates to double on those loans will drive up the cost of borrowing for the most vulnerable borrowers in the nation, low-income college students who are striving to get a college degree in order to change the lives and fortunes of their families -- ambitious students who will return great value to their workplaces and nation as they move up at work and into leadership positions in their communities.

Public officials from President Barack Obama to Secretary of Education Arnie Duncan to congressional Republicans and Democrats all pay lip service to the two great verities of the nation's vision for post-secondary education: access to college must be wider for previously marginalized populations, and completion of college degrees must occur faster. These twin goals of public policy are not just rampant altruism; the economic competitiveness of the nation and prospects for long-term growth depend heavily on improved educational attainment for the American workforce.

Despite the lip service paid to access and completion, however, federal policy is running fast in the opposite direction. Allowing the interest rate to double on Stafford loans is a cruel and cynical trick being played on students who live along the poverty line. Another $1,000 might be dinner with wine for a member of the U.S. Senate, but to students like Jasmin, such an increase might mean the difference between staying in school and stopping out, once again, because the long-term costs seem to be just too much to bear.

Similarly, proposals to make student loan interest rates variable will cost more over the life of the loans and have a pernicious effect on the ability of students, particularly low income students who often are very much alone in the entire process, to make sensible plans for debt management as they take on the loans and then plan their post-graduate careers. More cost and more complexity will discourage more students from completion of degrees -- I know too many students who have simply stopped attending because their lives are already complicated enough, and the increasingly dense thicket of federal jargon around financial aid is exhausting to decipher.

Congress should be ashamed of itself for imposing more barriers to college access and completion because of its perverse inability to make any good decisions these days. Even worse, the suspicion lurks that Congress is allowing gridlock to forestall action to manage the interest rates because, in fact, student loans are very big business for the federal government. The Congressional Budget Office tells us that the U.S. government will make $51 billion on student loans this year. How much more money with the government make when interest rates double? (Note: Some analysts dispute the size of the profit; economists seems to have different methods for calculating the profitability of student loans.)

At the very least, Congress should leave student loan interest rates fixed at the current level, or even a lower level for Stafford loans in order to encourage the neediest students in the nation to enroll and complete college degrees. The current gridlock, perhaps even federal greed, betrays the original intent of the federal student aid system, which was and is to ensure equal opportunity for as many Americans as possible to achieve high educational levels.

While they're at it, Congress should also repair the damage done to Pell Grants last year when summer Pell grants were eliminated, and the number of semesters of eligibility was retroactively cut back from 18 to 12 semesters, slamming the door in the face of many low income students. The people who made up these rules did not ask the people whose real life experience would have informed these bizarre decisions. The elimination of the summer Pell Grant, in particular, runs counter to the goal of accelerating college completion, and suggests that lawmakers still think that students take the summers off to bring in the harvest.

By the year 2050, the United States will cross the demographic threshold from a white majority to a nation with several large minority populations -- Caucasian, Hispanic, African American, Asian. The rising tide of Hispanic and African American students in college is already evident, and because of the long-term effects of racism and poverty, students from these populations tend to have very high economic need. If this nation has any intention of continuing to embrace goals for educational attainment as a means to sustain global economic dominance, then Congress must act now to ensure that low income students from the populations who will be the future majority of Americans continue to have the financial support necessary to obtain college degrees.