For decades, American banks preyed on college students and their families. As the cost of college attendance grew by leaps and bounds, banks were everywhere, selling their loans and encouraging students to take on far more debt than was wise. And they made a huge amount of money on all of this -- much of it from taxpayers who subsidized loans with billions of federal dollars.
In 2010, most of this came to a screeching halt. The federal government determined that by bypassing banks and lending funds directly to students, it could save billions of dollars and keep costs to students lower.
But the government has proved almost as exploitative as the banks. Instead of keeping interest rates at a level that would simply cover the costs of administering its loan programs, Congress has chosen to make more than a little money -- billions of dollars every year -- off the deal and use that money to help balance the budget.
The result? More indebtedness at a time when current student loan debt already totals over $1 trillion. Hard to imagine.
The president's budget released this week could have weighed in on the side of students and called this practice of burdening tomorrow's young families with even more debt to help pay for today's government expenditures what it is -- insane. Instead, the president offered a plan that would avoid a scheduled increase in interest rates this July but would allow rates to rise without limit over the long-term. That is no solution for students. It is a political stance that might win the president a few budget hawk friends, but will do little in the long run to help students better afford the post-secondary education they need and that the country needs them to have.
A typical low-income family today must pay out-of-pocket or finance an average of 72 percent of its income a year to afford just one year of college at a four-year public or private institution. These students and their families cannot bear additional costs. The president's proposal, although it might lower interest rates very slightly in the first year, will ultimately allow those rates to rise uncontrollably.
Unfortunately, the rise in student loan interest rates is not a new issue. Last summer, the 3.4 percent interest rate on loans for the poorest students was in danger of doubling to 6.8 percent. Congress stepped in at the last minute with a one-year fix to keep rates low. Yet, here we are again, almost a year later and in the exact same position: Interest rates remain historically low for the rest of the American populace -- including home buyers or small business owners looking for loans -- but they are poised to skyrocket for students.
Washington should stop using student financial-aid programs -- including federal student loans and the Pell Grant program -- as piggy banks to be raided to pay down the deficit or cover cuts it has made in other programs. These programs exist to help hard-working students afford college and move us forward as a nation in the knowledge economy, not to help the federal government pay off its debts. We need a better, more comprehensive solution -- one that benefits students, particularly low-income and working class students, in the short and long term.
The debate over how to keep student loan interest rates from doubling on July 1 is an important one for students. And we need to act now to prevent that doubling. But, we must stop having one-off conversations about short-term problems. Our students need a comprehensive solution to college affordability.
The president should use his leadership position to help us replace the existing, opaque, crazy quilt system of grants, loans, and tax benefits with a streamlined financial-aid system that better targets dollars our country is already spending on low-income and working class students first. A comprehensive solution should simultaneously attack rising tuition for everyone, unmet financial need of the poor, and inadequate academic preparation in high school. And, most importantly, a redesign should leverage state governments -- the largest untapped lever in the fight to hold down college costs and increase completion -- to rightfully assume their substantial role in the shared responsibility of stemming the rise in college costs.
We can't tinker year in and year out with individual programs and think it will get us the type of improvement in college access, affordability, and completion our nation needs.