A Grain Of Saul: The Case For Making College Debt-Free

The current state of affairs is putting the economy at risk.

A Grain Of Saul: The Case For Making College Debt-Free

A Grain of Saul is a weekly column that digs into some of the biggest issues we face as a nation and as an international community in search of reliable data, realistic solutions, and — most importantly — hope.  

On Monday, the nation's top student loan official resigned and sent up giant red flags about the state of student loan debt on his way out the door.

Seth Frotman, who had served as student loan ombudsman since 2016, said the White House had "open hostility" towards millions of student loan borrowers, according to the Associated Press. Mick Mulvaney, the budget director for the White House and new director of the Consumer Financial Protection Bureau (CFPD), wasn't spared either: "The damage you have done to the Bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country."

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Frotman's fiery resignation letter, though, didn't go far enough in describing the calamity that outstanding student loan debt could become.Right now, there is more student loan debt — $1.5 trillion worth — in the United States than there is credit card and auto loan debt. Four in 10 of the Americans who went to college are left with student loan debt. Their debt, on average, amounts to $28,400 for the ones who took out loans to finish a bachelor's degree, according to a College Board report. 44 million Americans currently hold student loan debt.

That is especially devastating for millennials, 75 percent of whom are holding various kinds of debt. As a result, they're not buying homes, not raising families, and continue to be behind in paying off their student loan debt, which only results in interest and penalties driving up the amount they owe. Some default while others can't participate in the economy or pay their bills. 

So, what are the Department of Education and the federal government doing to solve this problem? 

As evidenced by Frotman's exit, they're doing the opposite of what needs to be done. Secretary of Education Betsy DeVos,one of the most controversial appointments of Donald Trump's presidency, has not let her detractors down. Many of her appointed advisers and high-ranking members at the Department of Education are now from the for-profit college sector, all but killing hopes she may continue to hold lenders accountable. So far, her team has been up to exactly what you'd expect.

In July, DeVos proposed scaling down the Obama administration loan forgiveness rules that helped out students who were defrauded by for-profit colleges. She dissolved the team that was supposed to investigate fraud at for-profit schools. She has ended the information sharing agreement between the Department of Education and the CFPB that helped catch fraudulent schools and loaners in the act. She paused the implementation of regulations that would stop for-profit colleges from being able to loan out exorbitant amounts of money if the education they provided wasn't enough to leave their students gainfully employed. As The New York Times editorial board put it: "The secretary of education has shown an impressive commitment to rescuing her friends in the for-profit college business from pesky measures to rein in their predatory behavior."

We need to do something, but what?

There are a few options. One proposal is to follow the Bernie Sanders model and make college tuition-free. That would mean public colleges would become tuition-free, while some students could still opt to apply to private colleges and receive financial aid. Sanders has always proposed paying for such a program by "taxing Wall Street," a vague outline for a plan that really called for the federal government to match state funding on tuition, a reduction of student loan interest rates, and small percentage fees on stock trades, bonds, and derivatives.

Already, states like Tennessee, Oregon, New York, Oregon, Rhode Island, Montana, Minnesota, Kentucky, Arkansas and Nevada have implemented different kinds of tuition-free colleges through state funds and scholarship programs. 

There's also the most extreme approach: forgiving the entirety of the $1.5 trillion of debt currently being held by students. 

This would give the education sector, the federal government, and most importantly students, a chance to start over. Not a single politician has formally proposed this plan, but plenty of pundits have advocated for it. Most people respond to the idea by dismissing it out of hand and citing the high cost to the federal government. A keen political observer would note, though, that $1.5 trillion is almost exactly how much the recently passed tax cuts, which were predominantly for wealthy Americans and corporations, will cost the federal government. 

As absurd as it sounds to forgive $1.5 trillion of debt, it's not just pundits who are considering it. Some researchers have made a perfectly clear case for doing just that. 

Researchers at the Levy Economics Institute of Bard College estimate that an immediate, one-time forgiveness of all student loan debt in America would boost our country's GDP by $86 billion to $108 billion over 10 years, reduce unemployment by .3 percent, and have just a "modest" effect on the deficit and inflation. 

WASHINGTON JULY 22: Demonstrators hold signs at the March for Education to show support for public education and the need for federal funds in Washington DC on July 22, 2017 Shutterstock / Rena Schild

As a millennial who took out loans to get through college, I can also attest — on a personal level — to what it'd do for so many of my friends and family. Many millennials would move out from their parents' homes where they are living rent-free so they can pay off loans. Others would buy the homes and cars they have been wanting to purchase. Some would take their new capital and invest in the stock market, enroll in health care plans or begin to pay off other debts, like credit card bills. 

Still, it's not clear exactly how such a plan would work.

But there's another more moderate and realistic option: not making college free, or forgiving all the debt, but making college debt-free. In July, members of Congress introduced legislation to do just that. The Aim Higher Act will create "a federal-state partnership that commits additional funding to states that invest more in their public colleges and universities." States would be providing two years of community college for free in exchange for federal funding and a promise to invest more in higher education. Among other things, the bill advocates eliminating incentives for for-profit schools to target military veterans and also ensures that institutions receiving federal dollars are putting that money back into the school, not lobbying and marketing.  

Of course, this plan won't immediately lift the burden for the millions of Americans drowning in debt right now. But it will make it easier for the ones who were victimized by predatory lenders to get their money back. It will help the ones who dropped out because they could no longer afford college find reasonable ways to finish their degrees. It will increase tie Pell grants in inflation so their value doesn't decline over time. And, most importantly, it puts oversight in place to protect for-profit schools from preying on the generation that's about to start seeking out higher education. 

As Frotman left his position handling the nation's student loan debt, he sent a warning shot over the bow for all of us to wake up and pay attention. I, for one, am keen to take his warnings seriously. That requires finding a serious response. So far, the Aim Higher Act is most serious, most complete and most student-centric solution drawn up to address the astronomical debt hamstringing so many young Americans. 

If Frotman's warnings aren't enough to galvanize Congress into action, what will be? 

Cover images via a katz / Shutterstock.com.

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