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Beyond Interest Rates: What Would Real Student Debt Reform Look Like?

If you have student loan debt or follow the politics of it, you're probably familiar with this deadline: On July 1, if Congress does nothing, the interest rates on subsidized federal Stafford loans will double from 3.4 to 6.8 percent. We absolutely don't want this to happen, since it would mean thousands of extra dollars of debt for many already low-income borrowers. Numerous proposals to address the looming rate doubling are being debated in Congress, and both sides of the aisle have already seen one bill each get voted down

But there's one thing all of these proposals have in common: They don't go nearly far enough to help students afford college, much less life after college. College costs have jumped 1,120% in the past 30 years, and student loan debt has doubled just since 2007. There's simply no way that this trend line is sustainable. Officials are starting to catch on that student loan debt is an alarming drag on the economy. If you force some graduates to spend as much each month on loans as they would on a mortgage, then it's no wonder fewer of them are taking out mortgages, or making other major purchases like cars. Plus, unlike with mortgages, student borrowers can't refinance to get a better deal: They are stuck in ironclad, decade-plus-long, bankruptcy-immune contracts that they signed as under-informed 18-year-olds with no savings and no credit history. 

Nautical metaphors abound when we talk about debt—you can be drowning in it, and watch out for the loan sharks if you get underwater. Keeping Stafford loan rates from doubling every year is like trying to bail out a leaking rowboat when you're stranded in the middle of the Atlantic: Necessary, but never-ending, and meanwhile getting you no closer to shore. Yes, students spend terrifying sums on interest over the life of their loans. And yes, lowering interest rates would put a significant chunk of change back in people's pockets, which would in turn stimulate the economy. But in the end, we won't get out of this rapidly sinking boat without an emergency airlift.

What will save us? We can start triage by allowing borrowers to discharge student loans in bankruptcy, expanding income-based repayment plans for both federal and private loans and allowing not just future but also current borrowers to refinance under today's historically low interest rates. In theory, all of these ideas could ease students' burden while causing minimal disruption to the way we pay for college. Yet tuition costs are so out of control that we may need some disruption. A new report from EdTrust proposes a solution that would guarantee debt-free education for low-income borrowers and interest-free loans for middle-income borrowers. It lumps together federal funding that already exists but is scattered among less-efficient programs that funnel benefits to wealthier students. This redesign would hold students accountable for their academic performance and hold states accountable for controlling tuition costs. And then there is some even broader re-imagining going on.

Melissa Byrne, an organizer in Washington, D.C., thinks we should fund higher education with payroll taxes—that is, the students' payroll taxes, once they start working. Some of Australia's education funding comes from a similar model, and it's how Social Security operates. Students could wait to fulfill their promise to themselves until they are better-equipped financially to do so. And schools would be forced to better manage their costs. "A lot of people think higher education should be free," Byrne said. "I don't mind paying for it, but we should all be in the same boat. If your parents want to pay your tuition by giving you the equivalent of 20 years of payroll taxes, that should be a taxable gift. Anything to keep college from being an inherited wealth passed from generation to generation."

Students will lose a lot more than the July 1 fight unless we start a much larger, much more insistent conversation about what our priorities are as a nation. Is education a privilege, or a promise? Is our first thought really of helping students—or are we making them feel just helped enough that we don't have to bother with more significant changes? Conservatives tend to argue that taking on so much debt is a choice, one you are not forced to make, and one you should be held accountable to. This is true to an extent. But again, we're talking about 18-year-olds, who have no concept of what they are getting themselves into, and whose parents, financially savvy or not, grew up in an era when a summer job could pay your tuition. We're talking about a system that gives wealthy students a triple advantage—more choice of elite schools because financial aid isn't an issue, no extra stress about working while trying to finish school and no debt eating up paychecks afterward. 

Today's students grew up trusting that college means economic opportunity and following your dreams. If the only barrier to their dreams is the dotted line—a barrier that their counselors say they must cross, and that is no big deal to cross because everybody does—a "choice" on paper becomes an inevitability in practice. Banks and universities make choices, too, but people tend to forgive the inevitability of their choices. Of course universities give more financial aid to wealthy students—they have to boost their rankings to get more donations. Of course banks try to maximize profits by showing lenders no mercy; they have shareholders who will abandon them otherwise. We need to present an alternate choice—the actual choice. Would the American people support a government-levied tax on students that is redistributed to bank shareholders? Surely not. And yet this is exactly how our current system works. Water may be wet, but the fish don't know that.

Emily Crockett is a freelance writer and an editor at Campus Progress. Her work has been featured at The Nation, The Huffington Post, Alternet and In These Times, among other publications.
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