The House is expected to vote and possibly pass a student loan bill that passed the Senate last week by a vote of 81 to 18. The new bill would tie the student interest rate to market rates instead of the current 6.8 percent on federal loans taken out for the 2013-2014 school year. Rates on the subsidized Stafford federal loans doubled to 6.8 percent on July 1 because the bipartisan CONgress could not agree on a way to keep them at 3.4 percent.
Is this a victory for students and taxpayers as Rep. John Kline, Republican chairman of the House Committee on Education and the Workforce, has said?
It’s a victory to a manufactured problem, and a small one at that. You know, the actual financial ramifications of the interest rate having doubled was only about somewhere between $1,000 and $3,000 over the life of the loan for affected undergraduates to begin with. So it was really not that big of a deal to start out with. This whole fiasco has been essentially a distraction to the fact that there are structural problems with the student lending system that CONgress has yet to deal with and absolutely needs to in a very critical way.
Do you know why anybody or everybody can get a student loan? Well, when it comes to student loans, the lending system has turned functionally and structurally predatory because of the fact that the most standard consumer protections that American citizens have every reason to expect and exist for every type of loan don’t exist for student loans. They’ve been removed by CONgress. This includes bankruptcy protections, statutes of limitations, and truth in lending requirements. This, in turn, has created a very serious and unprecedented collection industry that has been given power that no collection industry has ever enjoyed. This has created a debt system where it’s quite frankly more profitable for the lending side when loans default rather than remain in good stead.
This is very dangerous, and it has enabled the inflation that we’ve seen. It has enabled a cavalcade of corruptions across the system. While it has greatly enriched the universities and allowed them to raise their prices willy-nilly and also enabled horrible inexcusable absent government oversight, it has not helped the students. As we have reported here in previous articles, it’s the sticker price, and until CONgress deals with the structural problem, the price of college will only continue to rise.
How massive is this problem? Currently students across the country are over $1 trillion in debt, which is more than credit card debt. In 2005 we owed less than $400 billion as a nation in student loan debt, and that was a huge amount at the time. Here we are eight years later, and we currently owe about $1.2 trillion in student loan debt. The availability of student loans has raised the price of college faster than health-care costs, faster than even home prices before the bubble and bust in 2008.
CONgress manufactured this crisis by removing, number one, bankruptcy protections, but also statutes of limitations, state usury laws, and other fundamental consumer protections that enabled the debt spiral to begin. Similarly, Congress can very quickly solve this situation by returning at a minimum the standard bankruptcy protections that should have never been taken away. By doing this, they will force the lending side to have skin in the game on the side of the borrowers rather than on the side of the banks. In that environment, we could expect the Department of Education to begin cracking the whip on the schools to get serious about lowering their prices, improving their quality, and so forth. This is how a free-market system works. Even the most ardent conservative economists would agree with that approach.
We can only hope that the affected citizens will take this very seriously, because it is a guarantee that if the citizens do nothing and expect the PTB in Washington, D.C., to do their work for them, it will not get done. This is incumbent upon the citizens to fight this battle for themselves, unfortunately, because we are on our own.
This is one issue that I think does involve all of us, every single family with kids in school. We need to organize a giant lobby, since that seems to be the only thing that matters to the gangsters on the Hill. Only this lobby wouldn’t deal in campaign cash, it deals in votes. They still do count votes in Washington. This is an issue that isn’t left or right, liberal or conservative. Parents and students, this is one project you could work on together. Moms and Dads could the write the petitions and present to CONgress and kids can organize the whole movement through social media and texting? DO IT!