The President's Plan For Student Debt Repayment

Signing Ceremony for Presidential Memorandum to Secretary of Education

Signing Ceremony for Presidential Memorandum

President Obama signed a memorandum on Monday, June 9, directing the Secretary of Education to propose regulations that would allow nearly 5 million federal direct student loan borrowers to cap their loan payments at 10 percent of their income. (View the text of the memo with all of its provisions here).

“Today, 71 percent of students earning a bachelor’s degree graduate with debt, which averages $29,400,” according to the White House website. “While most students are able to repay their loans, many feel burdened by debt, especially as they seek to start a family, buy a home, launch a business, or save for retirement.”

“Here’s the problem,” said Obama. “At a time when higher education has never been more important, it’s also never been more expensive.  Over the last three decades, the average tuition at a public university has more than tripled.  At the same time, the typical family’s income has gone up just 16 percent.” (Read the president’s remarks from the signing ceremony here).

I did a reality check. When I entered the University of Iowa during the fall of 1970, in-state tuition was $310 per semester. Adjusted for inflation, that would be $1,835 in 2013 dollars. Last semester, the same tuition was $3,339, an increase of 82 percent, and far short of tripling over four decades. Based in this simple analysis of rising tuition costs, the “three decades” usage belies the complexity of increases in college costs.

There are differences between state university tuition and broad averages that include private colleges and for-profit educational institutions. Set that aside for a moment, and and here is the president’s point: if a person must spend more than 10 percent of income on debt servicing, the money comes from somewhere in a budget, and discretionary spending related to our consumer economy takes a hit. Another consideration that is not being discussed is that extending repayment terms by capping monthly payments will increase interest costs, which either the government or the student will end up paying.

The president’s action serves the Democratic narrative about supporting the middle class. It is also consistent with the U.S. Senate Democrat’s “Fair Shot” initiative on making higher education more affordable. The usage of “over the last three decades” subtly points to the Reagan presidency as the beginning of a tuition spiral, but it is doubtful that the Reagan administration is fully to blame.

Who is? Senator Tom Harkin, chair of the Committee on Health, Education, Labor, and Pensions, points to for-profit schools that take advantage of students in the recent report issued by the committee after investigating them. Salon laid out a number of culprits in Sunday’s article, “Colleges Are Full of It: Behind the Three-Decade Scheme to Raise Tuition, Bankrupt Generations, and Hypnotize the Media.”

Of course some, like Inside Higher Ed‘s Michael Stratford, are quick to report that some consider the memorandum to be a political ploy to activate a key Obama constituency in time for the 2014 midterm elections. Republicans like Senator Lamar Alexander (R-Tennessee), ranking member of the Committee on Health, Education, Labor, and Pensions, are expected to resist this initiative, as their party has resisted almost everything the president has attempted during five years in office.

In any case, President Obama, through this executive action, is working to address a recognized problem with the debt burden of higher education students. Something that impacts not only former students, but the economy all of us reply upon.

On a related topic, Senator Elizabeth Warren’s student loan bill is to come up for a vote today, subject to the usual potential Republican filibuster. The bill is worth talking about, so click on the link to the Boston Globe article here to study up. Supporters of the bill are hoping for a compromise. You know the drill, call Senators Harkin at 202-224-3254 and Grassley at 202-224-3744 and let them know you support it.

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