Students and college loans

City Newspaper 2/27/2013

by DOUG NOBLE, ROCHESTER

Tim Macaluso’s recent article ignores the real issues behind massive student debt. Instead of parroting college administrators in blaming parents and students for their poor choices and lack of “financial discipline,” it might have mentioned this vicious cycle:

Colleges have been able to inflate tuition costs way beyond even health-care costs because of the government-subsidized student loans themselves. The market for higher education would surely have dropped in the face of outrageous price increases, deterring students from going to college. But students can get subsidized student loans very easily, which they cobble together to pay staggering tuition costs. Meanwhile the colleges get paid up front, and crippling debt accumulation is the student’s problem.

And the “too big to fail” banks who are the middlemen in these subsidized transactions are all too happy to play their role risk-free, since if students default, the banks will be reimbursed by the government. The government can then sell the loan to a collection agency, often owned by the same banks, adding their fees to bloated interest payments.

Young people could avoid this rapacious cycle if only they could make a decent living without getting a college degree, but there are few alternatives. Meanwhile, those with their degrees are not coming out with high-paying jobs enabling them to service their debt, since this is the highest unemployment rate for college graduates ever recorded.

Compounding this dire situation is this stunning fact: while interest rates are generally at an all-time low, with those on government debt currently pegged at 1.97 percent, interest rates on federal student loans, set by Congress, remain stuck at 6.8 percent, needlessly and disproportionately burdening students.

Even if the entire student-loan machinery won’t be easily dismantled, these exorbitant interest rates can be reduced immediately. And it is in the nation’s best economic interest to do so, since reduced student-loan costs decrease the likelihood of default while stimulating the economy by freeing up income that can be spent in other sectors of the economy. The Center for American Progress has initiated a campaign to pressure Congress to lower student-loan interest rates.

Also, the group Occupy Student Debt has organized a “Rolling Jubilee” strategy to buy off student debt, as well as a movement to empower student debtors to commit themselves to a massive nationwide “Debt Strike.” These offer some alternatives to simply blaming the victim or counseling despair. In the words to students from the still vibrant Occupy movement: “You are not a loan.”

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