After receiving nearly 30,000 submissions from experts and individuals, the CFPB released a report this month of areas where Washington could be helpful in relieving the drain student loan debt is having on our economy.
The report found student debt impacts the ability of borrowers to get a mortgage, diminishes entrepreneurship and dampens the desire for young adults to go into much needed professions like medicine and teaching.
This was a thoughtful analysis of the challenges ahead if Washington doesn’t get serious soon about student debt, starting with a short-term extension of the 3.4 percent cap on interest rates before they double in July.
Americans don’t expect us to agree on every proposal to address the student debt crisis, but they certainly want us to be honest in staking out our positions.
In fact, their proposal is worse for students than if Congress did nothing and allowed rates to double in July. But you would never know that listening to their rhetoric in support of the bill. Republicans argue their approach eliminates the need for the federal government to constantly have to pass temporary fixes to stop rates from spiking.
Their proposal makes interest rates for subsidized and unsubsidized Stafford loans variable and caps them both at 8.5 percent. Interest rates on graduate and parent PLUS loans would also be variable with a cap of 10.5 percent.
So what’s wrong with this approach? For starters, the interest rates in the Republican proposal are not only variable year to year but also across the life of the loan. This means the interest rate a borrower receives when they took out the loan could be very different than the rate they must pay after graduating and the first billing statement hits their mailbox.
Why not protect students from fluctuating rates by simply making the current interest rate of 3.4 percent permanent? This also removes the uncertainty of having Washington act every couple of years to pass extensions while protecting borrowers.
If we can allow big banks to borrow at less than 1 percent then we can do better for our students then what the Republican bill calls for.
We have to do more than just give lip service to the notion of not passing debt onto the backs of future generations and student loan debt is a great place to start.
But the GOP plan amounts to a nearly $4 billion tax on students, parents and grandparents. Students who borrow the maximum amount of subsidized and unsubsidized Stafford loans over five years would pay $14,430 in interest under the Republican bill, $12,598 if subsidized loans were allowed to double in July, or $7,965 if rates don’t double.
Parents and graduate students would also pay more under the Republican bill. For instance, a parent who borrows the maximum amount for their child over five years would face $35,848 in interest payments under the Republican bill, more than the $27,956 under current law.
It’s a sad bait and switch that promises borrowers low interest rates today but will ultimately charge them higher rates in the future when it’s time to start paying back the loans.
Washington can do more to give borrowers certainty and manageable rates on their student loans by reinvesting the billions of dollars the government is earning from student debt and providing borrowers a permanent low capped rate over the life of their loans.
The federal government is estimated to earn $34 billion next year from student loan debt. Washington shouldn’t be making money on the backs of student borrowers, especially while offering more favorable rates to the very same institutions that wrecked our economy in the first place.
Instead we should be investing in the next generation by making college more affordable.
It's not only the fair thing to do — but it’s best for our economy.
Bass represents California’s 37th Congressional District and authored the The Student Loan Fairness Act of 2013.