When college graduates can’t afford to pay back their student loans, it drags down the whole economy.
Americans now owe a collective $1.3 trillion in student-loan debt, a figure that has doubled since 2007. Borrowers are being forced to delay the normal rites of adulthood such as buying a car and home. One in seven borrowers is now in default, the highest level in two decades.
There are mixed signals about whether Washington has woken up to the scale of the problem. President Barack Obama issued an executive order June 9 expanding a program that caps student-loan repayment at 10 percent of the borrower’s income and forgiving any remaining balance after 20 years.
But in the same week, the U.S. Senate failed to advance a bill from Sen. Elizabeth Warren, D-Mass., that would have allowed borrowers with old government loans to refinance them. The program would have been funded with a new tax on millionaires.
Lawmakers would better serve students by finding common ground on ways to simplify the loan system and reduce the risk of default. At the same time, colleges must better control costs and states must do their part in supporting higher education.
One way to fix the convoluted loan system is scrapping it entirely. Students might instead be automatically enrolled in an income-based repayment system. Rep. Tom Petri, R-Wisc., has long advocated the idea and Sen. Marco Rubio, R-Fla., recently endorsed a similar plan.
Borrowers would have an affordable percentage of their incomes withheld from their paychecks to pay back their loans. Countries such as Great Britain have such a system and have default rates that are next to nothing.
But making loans more manageable won’t solve the problem. Tuition has risen at a rate higher than inflation for years.
Some of the increases can be attributed to the exploding costs of administration and student services. In addition, state contributions to public universities have fallen.
A college degree remains an important key to economic advancement. The latest jobs report showed that workers with at least a bachelor’s degree have an unemployment rate half that of workers who didn’t attend college.
Yet if a degree comes with massive debt, the economic benefits are muted. If we truly want college to benefit students and the economy, a major revamping of the student-loan system and shift in priorities is in order.
A version of this editorial first appeared in the Gainesville Sun, a Halifax Media Group newspaper in Florida.