Earlier this month, Democratic Senator Elizabeth Warren responded to a new Congressional Budget Office report, calling the federal government “obscene” for earning $66 billion in profits from student loans between 2007 and 2012 — and that it is poised to collect another $185 billion in profits over the next decade.
“The government should not be making $66 billion in profits off the backs of our students. This report reinforces what we already knew — instead of investing in our children and their futures, the government is squeezing profits out of our young people and adding to the mountain of debt they will spend their lives struggling to repay… It’s time to end the practice of profiting from young people who are trying to get an education and refinance existing loans.’’
Hear, hear. Student loan debt has not only surpassed credit card debt as the largest burden carried by young Americans, it is also crippling economic growth in the United States.
To meet their high monthly student loan payments, college graduates delay the major purchases keeping our economy afloat, such as buying a home. Twenty percent of graduates also default on student loans, compiling bad credit ratings that will hurt their future economic stability. (Remember, student loans are not eliminated when filing bankruptcy.)
For these reasons, and more, Warren, along with Senators Barbara Boxer (D-CA), Dick Durbin (D-IL), and Jack Reed (D-RI), introduced legislation in December 2013 for a Student Loan Borrower Bill of Rights, which would mandate that all loan agencies, including private loan providers, supply students with clear and intelligible information about the loans they contract, as well as allow students and graduates with older, higher-interest loans to refinance at today’s lower interest rates.
As Senator Reed said:
“If we’re going to make a dent in making college affordable, we have to hold servicers accountable, increase transparency, and ensure students and their families get a fair deal. The Student Loan Borrower Bill of Rights will help establish clear, measurable expectations for servicers and ensure borrowers have access to the information they need to make informed decisions about repaying their student loans.”
This proposed Bill of Rights fits well with the increased emphasis on consumer protection after the Great Recession, which stemmed from the destructive actions of large banking corporations. Since, greater attention has been paid to ensure transparency in all economic transactions, especially those affecting the credit ratings and daily living conditions of Americans.
Some might argue that the 2011 creation of the Consumer Financial Protection Bureau is enough to ensure fairness to borrowers, and that a new law specifying student loans is unnecessary. (The CFPB regulates mortgages, student loans, and credit cards to prevent consumer fraud or misuse.)
But the Student Loan Borrower Bill of Rights makes sense. Traditional-age college students are among the most vulnerable of potential borrowers. They lack the financial experience to understand the impact that credit mistakes made now can have on their future financial security.
Students are also desperately trying to plan their lives while facing pressure to attend college from no less an influential figure than President Obama, who in his 2012 speech to the National Governor’s Association reminded Americans that “the jobs of the future are increasingly going to those with more than a high school degree.”
Faced with that reality, students who do not have many economic choices must rely heavily on student loans for higher education. That vulnerability makes them easy targets for mercenary financial institutions.
Even if you don’t care about how individual students finance their education, the economic reality about the future job market is a good reason to support the Student Loan Borrower Bill of Rights.
The creation of well-educated citizenry with relevant job skills is an investment in the future of our national well-being. The availability of lower-interest student loans, and fairness and transparency in the handling of those loans, will help us build a competitive workforce that can compete for markets around the world.
Surely we can figure out a way for the federal government to start seeing those future benefits as the real profit, rather than wrest every last dollar from new college graduates already struggling to establish themselves.