Why Is The Student Loan Crisis Being Ignored?
Debt has reached $1 trillion but politics hamper solutions
When it is election season, it’s always best to play it safe. But that’s not the only thing holding politicians back from taking bold measures to solve problems, such as the student lending crisis. Outstanding student loan debt is now at $1 trillion and no relief is in sight. Why? The list of reasons is long – the corrupting power of money in politics, partisan bickering, the overwhelming influence of lobbying groups over the needs and wants of the American public, etc. – and more bullet points are being added to it and worsening the political landscape. Of course, politics in the U.S. has always been rife with problems. However, many seasoned staffers on Capitol Hill have noted that the partisan battles have worsened in recent years. Many experts bemoan the loss of bipartisan efforts – except, as they point out, when it comes to the two parties passing huge budgets for the Pentagon and the defense industry – and talk of the dangers of a political system that is a duopoly.
So when it comes to viable solutions for the student lending crisis, band-aid solutions seem to be the safest approach.
Right now, leaders are fighting over the doubling of interest rates on federally subsidized loans on July 1, 2012. This means the current rate of 3.4% will go up to 6.8%. Republicans are insisting that the agreement, which had been reached years ago to keep them low for a specific period of time, should expire as planned. After all, that is what they had agreed upon. Democrats are arguing that they need to remain fixed at 3.4%. Representative Joe Courtney (D-CT) has introduced legislation (H.R. 3826) to maintain the lower rates. Furthermore, there is a matching bill on the Senate side (S. 2051), which was drafted by Senator Jack Reed (D-RI).
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The position of the Democrats is understandable. At a time when unemployment is at dangerously high levels for youth, and that includes young Americans with college degrees and student loan debt, the idea of letting these rates expire seems unusually cruel and unnecessary. In numerous articles, current college students have expressed concerns about the additional debt they will incur upon graduating. Last week, 130,000 letters from college students were sent to House Speaker John Boehner (R-OH), House minority leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV), and Senate minority leader Mitch McConnell (R-KY) urging them to maintain the current interest rates.
While letting the rates rise would be a blow to young Americans who are currently in school, it detracts from addressing another problem: the millions of borrowers who are currently drowning in student loan debt, unable to buy homes, start families and contribute to society in meaningful and productive ways. Do Republicans, in particular, care? It seems as though they don’t. Again, it’s politics as usual, and at the expense of the hard-working American students and graduates who deserve far better treatment. One almost wonders if it’s an assault on Millennials and those who pursued higher education to better themselves. In the very least, it shows how sorely out of touch this particular party is when it comes to the youth vote – they are the ones carrying a great deal of this student debt on their backs, both those in school and out of school.
But when it comes to tackling the student lending crisis, neither party has much to offer. Indeed, there are few leaders on the Hill with the guts to tackle the problem, even the ones who are purportedly advocating and fighting on behalf of current debtors.
For instance, Senator Dick Durbin (D-IL) has introduced the Fairness for Struggling Students bill. If passed, this bill – which has been introduced numerous times in the past (and not just by Durbin) – would restore bankruptcy protection rights to borrowers with private loans. This would remedy a situation created by Congress and George W. Bush who in 2005 signed the Bankruptcy Abuse Prevention and Consumer Protection Act, making it essentially impossible to discharge any private loans in bankruptcy. What a victory that was for the financial and banking industry, right? They should really pat themselves on the back for that one. Durbin’s insistence that borrowers be allowed to include their private loans when declaring bankruptcy make sense. It is entirely reasonable. In order to bring attention to the issue, Durbin held a press conference on March 20th to discuss his legislation.
But if this legislation even passed, and it doesn’t even seem like there is the possibility of an ‘if,’ how would this even begin to help individuals who have federal loans? Whenever leaders bring up the student lending crisis, almost all of them fail to mention this fact: 90% of new student loan volume is federal. That’s right. Ninety-percent. In addition, at this juncture 36 million Americans have outstanding federal loan debt.
And when you default on your loans with Uncle Sam, it’s more than just nasty. It’s life shattering. The government has the power to garnish wages without a court order. They can also take funds out of Social Security benefits and disability checks. Money can be taken from income tax refunds, too. This leaves a person’s credit in shambles. Rehabilitation is possible, but it is a long, hard process. Many don’t manage to get out of this chute that leads to defaulter’s hell.
Ask John Koch, a law graduate from Touro University. Koch was recently interviewed by a reporter at the ABA. When he “retires,” Koch will owe, due to penalties after defaulting, close to $1.5 million. At one point, Koch was married and lived in a home with his wife. His debt led them to get divorced. When he graduated in 1996, he had $69,000 in loans.
His wife could not stop worrying about the amount of student loans he had. Koch recalls the nights when he would find her in tears. “She'd be crying at 3 a.m. I'd hear her in the bathroom. The debt was a major factor. And she would say, ‘If they can pay for a million dollar bomb in Iraq, why can't they pay off this student loan debt?’At the time, Bush was in office.”
Koch said that his wife would repeatedly say, "The government is going to take our house! It's all we have."
At one point, his wife thought she’d found the solution. Koch came home one afternoon, and his wife was crying again. But she was also smiling. He was confused and asked her what was going on.
"I found this lawyer," she said with tears were in her eyes. "You're free! You're free! A lawyer can help you."
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As it turns out, the lawyer couldn’t help Koch. Most of his loans are federal. The news was devastating for the two of them. That was a turning point in their relationship.
The stress was too much, so Koch essentially walked away from the marriage. He didn’t want to subject his wife to the ongoing situation. Reflecting, Koch sighed deeply and said, “She had a literal fear [of the government]. I don't know how many times she said, ‘They took away bankruptcy. Who knows when they'll do to us!' It wasn't based on fact, but . . . it was tangible and real. Can you blame her?"
Koch is now a painter and lives with his parents.
Durbin’s legislation would not help an individual like Koch. The fight to keep rates at 3.4% should not even be a battle. The Democrats are right – the rates should not expire. But do these measures even begin to get to the heart of the crisis? The answer is no. With outstanding student loan debt at $1 trillion, the crisis is not being addressed. It is only worsening. While Durbin’s legislation ought to pass and pass swiftly, there is not a silver bullet to the problem. Plus, those who are culpable for creating the mess, such as the lenders, the government, and the institutions of higher learning, get off the hook. Bankruptcy is not easy, and in the end, who still pays the price? The borrower does.