Student debt relief is worth exploring

Article by: Editorial Board, Star Tribune

House DFLers are touting an intriguing idea that would cut debt.

Student loan debt is penetrating political consciousness more deeply this campaign season than any in memory — and to that, we’d add that it’s about time.

Americans’ outstanding student loan debt hit $1.2 trillion in May, according to the Consumer Financial Protection Bureau. It outstripped total consumer credit card debt a few years ago; today student loans are second only to home mortgages in total U.S. consumer debt burden.

About that mortgage connection: John Burns Consulting, a homebuilders’ adviser, said this month that student loan debt is responsible for an $83 billion drag on home buying this year. That’s 414,000 homes that won’t be sold because 5.9 million Americans under age 40 — triple the number since 2005 — spend $250 or more per month on college loan debt service.

It’s about time that politicians — and other Americans — recognize that a debt load that heavy does not burden recent college grads alone. The whole economy is affected when the purchasing power of that many aspiring young adults is pinched. That consequence should have been discussed more widely as governments in Washington, St. Paul and other state capitols squeezed higher ed funding in the past decade.

To their credit, Minnesota candidates for state and federal offices are talking now about high student loan debt as a problem government helped create, and that government ought to help remedy. For example, Democratic U.S. Sen. Al Franken is promoting a good bill that he co-sponsored this year to reduce the interest rate on federally guaranteed student loans to 3.86 percent from the current 4.6 percent, and to allow existing loans to be refinanced at that lower rate. The bill, which was financed by putting a floor under the income tax rate paid by the nation’s top earners, attracted 56 votes in the U.S. Senate in June, four short of the number needed to break a GOP filibuster.

Franken’s Republican opponent, Mike McFadden, said in July that he could support Franken’s bill if it weren’t financed with a tax increase. He pointed to sharply rising tuition as the chief student debt culprit at Tuesday’s noontime Voterpalooza at the University of Minnesota, implying that colleges and universities can do more to clamp down higher ed costs.

That’s undoubtedly true. But few enterprises could cope with the deep funding cuts the Legislature dealt the University of Minnesota and Minnesota State Colleges and Universities (MnSCU) during the past two recessions without raising prices. A MnSCU analysis showed that state support per full-year-equivalent student dropped from an inflation-adjusted $4,766 per year in 2002 to $2,787 in 2012. It’s projected to be up to $3,247 in 2015 — still lagging the 2002 level by one-third.

MnSCU also reports that among students at two-year colleges, average annual student borrowing is up nearly twice as much as tuition rose between 2006 and 2013. That suggests that there’s more to rising student debt than tuition increases alone.

It’s notable, too, that the 2013 Legislature imposed a two-year tuition freeze on MnSCU and negotiated one with the autonomous University of Minnesota. The two public systems have offered to extend that freeze through 2017 for a price, and state House DFL leaders said this week that they also want to extend the freeze. But they stopped short of promising to meet the systems’ proposed price. That hesitation is justified. Freezing tuition may help constrain debt, though — as we argued last week — increasing aid for needy students might be a better way to maximize college access.

House DFLers also floated an intriguing policy idea — partial loan forgiveness for some Minnesota college grads. The idea, touted by Speaker Paul Thissen as he campaigned on campuses this week, would write down debt amounts of up to $3,000 per year for grads in two categories — those who take jobs in “vital fields” in Greater Minnesota, and those who spend a year in community service through ServeMinnesota, the state’s AmeriCorps program.

Thissen said his idea mimics a Kansas program that has slowed that state’s rural brain drain. It could also help ease a growing shortage of high-tech workers in parts of Greater Minnesota. Many of the proposal’s key features are yet to be decided, including which industries, in which places, and which indebted grads would qualify. He said he anticipates seeking about $10 million per year for the effort. That’s a small sum in a state budget that includes $1.4 billion per year for higher education, and in a state in which an estimated 550,000 people are paying off college loans.

We would encourage Thissen to think bigger as he puts more flesh on his idea’s conceptual bones. This nation has a long history of rewarding young people who serve their country by providing a discount on college costs. That was the genius of the 1944 GI Bill, which did much to build the modern U.S. economy. Thissen is talking about a reverse GI Bill — a government reward for service after graduation, not before. But our hunch is that this kind of reward is still a potent policy tool.

 

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