Student Aid Reform, Still More Needs to be Done

Students need more than good intentions. They need a guarantee that the savings realized by cutting out the banks and Sallie Mae go mostly to them.
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The Rainbow PUSH Coalition applauds President Obama's sentiment that Americans should not have to go broke to get a college education. The idea of cutting out the banks who have served as middlemen between students and the federal government is a good one.

For several years the Rainbow PUSH Coalition has advocated reducing the rate charged to students on college loans. Banks borrow funds from the government at favorable rates, then earn windfall profits by lending those same funds to students at exorbitant rates. Stopping that practice is the right thing to do.

The Administration essentially wants to cut private lenders out of the game and run the system itself. Democrats claim the move will save $68 billion over 10 years, which can be used for a laundry list of education priorities, including increasing the maximum amount of Pell Grants, expanding Perkins Loans and investing in community colleges and other programs.

Students need more than good intentions. They need a guarantee that the savings realized by cutting out the banks and Sallie Mae go mostly to them. There are lots of hands out for the income that direct student lending will generate. Some of it will go to subsidize universal access to health care. But most of it should go to students themselves.

For decades, economists and others have been warning that America does too little to develop its human potential. We agree. Now is the time to invest like there's no tomorrow in the next generation of scientists, thinkers, advocates and inventors.

Americans are trapped in $700 billion dollars worth of student loan debt. There should be a path out of debt through our danger zones for those who need it. The path could start with service in the nation's military; wind through ghetto and barrio schools; stop by urban food deserts to deliver nourishment and medical care to the rural sick.

A plan to earn debt forgiveness retroactively must be instituted at once as an acknowledgment that an entire generation is mired in tens of thousands of dollars in student debt. Not every one of them will be able to write a blockbuster memoir to pay off student loans. By way of comparison, in Great Britain, student loans don't come due until the former student earns 30,000 pounds.

This is the Second Great Depression. Students should not have to worry about loan repayment while they are unemployed and looking for work. Nor should compound interest mount during periods of unemployment.

President Obama and the Congress have made a good start. But more needs to be done:

  • While interest rates for students have been lowered there must be a pledge that students can borrow at the same favorable rates of 0-1% extended to the nation's favored banks;

  • There must additional "retroactive" provisions made for students who have already graduated and are now saddled with an average undergraduate debt of23,000,42,000 for graduate students. They should be able to refinance and take advantage of new currently available interest rates.
  • Student loans are the only loans in our nation's history to be specifically exempted from standard bankruptcy protections, statues of limitations, and other fundamental consumer protections. Legislation and regulations must be put in place to remedy this unfairness.
  • Extend the grace period before loan repayment and suspend compounding interest rates for students who graduate and then are unable to find a job. In these economic times it takes a college graduate an average of 6 months to a 1 year to find a job. The rules should reflect reality.
  • Don't use the direct student loan program only as a way of balancing the budget on the backs of students. Guarantee them a square deal. Our students and education should be national investment, not a commodity.