Congressional Compromise on Student Loans Tied to Financial Markets is Deeply Flawed

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Posted Sept. 11, 2013

Interview with Richard Blumenthal, Connecticut's senior U.S. senator, conducted by Melinda Tuhus

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Every year, millions of students graduate from American colleges and universities with a total of billions of dollars in debt. Earlier this year, after much debate, Congress adopted legislation that rolled back student loan interest rates, but tied the rates to the financial markets, which means that over time, those rates will surely rise.

Sen. Elizabeth Warren, D-Mass. introduced a bill that would have made student loan rates the same as those charged to the nation’s largest banks when they borrow funds from the federal reserve – 0.75 percent, but the legislation was defeated. For the coming school year, the interest rate for undergraduates is 3.86 percent, and for graduate students it’s 5.41 percent.

Between The Lines’ Melinda Tuhus spoke with Connecticut's U.S. Sen. Richard Blumenthal, who has been an outspoken critic of exorbitant student loan rates. He supported Sen. Warren's bill and proposed expanding the federal government's "Pay as You Earn" program, that reduces payments for some graduates based on the size of their family and income after graduation. Here, Sen. Blumenthal explains why Congress as a whole rejected Sen. Warren’s interest rate plan and what steps he’s advocating to reduce the burden on students facing ballooning college debt.

SEN. RICHARD BLUMENTHAL: I voted against the bill that was signed by the president because it means, temporarily, lower interest rates, but eventually a very drastic increase in the charges to students – up to 8.25 percent – and the rates are climbing. So it's really a very, very short-sighted and short-term gain at the expense of long-term pain and much increased costs for the students of next year and succeeding rates. And we need lower interest rates for students; in fact, I've supported a measure that would give students' rates the benefit of those rates that are charged to the banks when they borrow from the Federal Reserve. When the banks borrow from the Federal Reserve, they're charged less than a percentage point – .75 percent. Why not give student the benefit of the same rate?

We have to view student loans as an investment, not a help to students, but an investment in their future and our nation's future. Last year, at 3.4 percent, the federal government made $51 billion off the backs of students. That is unconscionable for the government to profit from the student loan program is unacceptable, and we ought to be giving students the benefit of the same rates that we charge the big banks, which are presumably deficit-neutral – costless – and we need to view the student loan program as an investment in the future of our students and America, because we need those skills.

BETWEEN THE LINES: What's in the way of Congress agreeing to make student loan rates the same as bank loan rates?

SEN. RICHARD BLUMENTHAL: Members of Congress, very tragically, see the student loan program as a way to solve the deficit and the debt. They see it as producing revenue for the federal government. But we can make smart cuts, not the kind of counter-interest cuts that the student loan program has suffered over the years. There is a way to solve the deficit and the debt problem with smart cuts, a balanced approach that eliminates some federal spending and raises some revenue, but not on the backs of students who are our future and we ought to view this investment as very critical to our national interest – as much as our national defense or any other essential government investment.

BETWEEN THE LINES: Sen. Dick Blumenthal, can you give me any specifics on ways that excessive student debt negatively impacts the economy and the whole issue of jobs?

SEN. RICHARD BLUMENTHAL: As much as I'm concerned about the level of interest rate now on student loans, I'm equally, if not more concerned about the trillion-plus dollars in existing debt from past years, and that is not only financially crushing to those people (who took out loans), but it's also a tremendous waste and drag on the economy. Those people who owe tens of thousands of dollars in debt cannot start new businesses, build homes, form families, because they are mired down by debt, so consumer spending is dragged down by the tens of thousands of dollars that each person owes – an average of about $29,000 for every student now graduating in Connecticut; and that $1.1 trillion in debt is a tremendous drag on the economy.

BETWEEN THE LINES: What do you think is the solution to the student debt debacle?

SEN. RICHARD BLUMENTHAL: There are basically three legs to the solution. One is to reduce interest rates on these student loans. The other is to provide means of these students having opportunities for debt relief, for repayment relief, on existing debt. And I've urged, and I've proposed legislation to expand the pay as you earn program so students don't have to wait 20 years before their debt could be relieved, and the public service program that recognizes students for what they give back, whether in teaching or providing medical services, if they work in the community, if they provide service, their work ought to be recognized and their debt forgiven, at least in part. And there are ways to expand existing programs, but also to change the tax code so as to enable students to have repayment options that they lack right now. And the third leg of dealing with student debt is to reduce the cost of tuition – drive down the cost of higher education in college and also reduce costs, for example, of text books and other expenses that students have. We need to drive down the cost of college.

Some of the for-profit colleges are making very large amounts of revenue without providing sufficiently valued product. Some of the cost of supplies like textbooks, are excessively high. And some of the charges in colleges – put aside tuition – living expenses in dorms and so forth, can be driven down. So, we need a national strategy to drive down the cost of tuition.

BETWEEN THE LINES: I've read some horrible stories about how for-profit colleges and training institutes prey, especially, on low-income young people. They promise them jobs, but don't follow through. What kind of regulations are they under?

RICHARD BLUMENTHAL: There are proposals that I've made to regulate more strictly, or oversee and scrutinize, the colleges. Some have improved. But many of the practices that prey on lower-income students – and our veterans – continue to exist. So I think we need to take a hard look at for-profit colleges. An investigation released last year by Sen. Harkin and myself showed that many, many people leave the for-profit colleges without degrees, but with huge amounts of debt.

For more information on continuing efforts to address unsustainable student debt, visit Student Debt Crisis at studentdebtcrisis.org and National Student Power Convergence 2013 at studentpower2013.org.

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