Gazette opinion: Transparency needed to reduce student debt risks

2012-05-06T00:10:00Z Gazette opinion: Transparency needed to reduce student debt risks The Billings Gazette
May 06, 2012 12:10 am

Montana State University Billings graduated more students in 2012 than in any other year of its history. The 1,028 graduating last weekend included 347 from the College of Technology and 98 earning master’s degrees.

On Saturday, 208 students received degrees from Rocky Mountain College.

While we congratulate these new graduates, we are mindful that the class of 2012 has a burden that weighed less heavily on past generations of college alumni. Student debt is rising faster than general inflation and much faster than family income.

Two-thirds of U.S. college seniors graduating in 2010 had student loan debt, and those in debt were carrying an average of $25,250 in loans. That was 5 percent higher than in 2009, a trend that has been seen for the past few years, according to The Project on Student Debt.

Meanwhile, average in-state tuition and fees at U.S. public colleges and universities rose 8 percent over the past year.

With student debt growing so fast, students won’t be the only ones to feel the effects.

“Some economists fear that lingering student debt will force many young adults to delay or defer important milestones, such as marriage and starting a family, which can impede a full economic recovery,” according to an article in the May issue of Consumer Reports.

For example, paying off student debt may force young adults to forgo buying homes at a time when the housing market is still struggling across much of the nation. Without young buyers, seniors may not be able to sell their homes.

In February, President Barack Obama’s fiscal 2013 budget proposed that the interest rate for federally subsidized student loans remain at 3.4 percent for the coming year.

In March, the Republican-led U.S. House Appropriations Committee called for changes in federal student loans to students with financial need, proposing that those students start paying interest on the loans while they are still in school and scaling back the interest repayment programs (based on income) that make loans more affordable. That House budget proposal didn’t address the scheduled doubling of interest rates on federally subsidized student loans.

More recently, both Democrats and Republicans have spoken in favor of holding the line on student loan interest rates that are scheduled to double for loans made after July 1. Montana’s entire congressional delegation recently told a Gazette reporter that they favor maintaining the 3.4 percent rate. Republican presidential candidate Mitt Romney has agreed with Obama on student loan rates.

However, the parties disagree on how to pay for the estimated $6 billion one-year cost. Democrats have proposed scaling back oil company subsidies while Republicans, including Rep. Denny Rehberg, propose eliminating some funding for public health care.

At a time when students and families generally can’t earn even 1 percent on their savings accounts, the federal low-interest-rate policy ought to extend to investing in college education.

However, the Stafford loan interest rate is just one facet of the student debt problem.

In addition to subsidized federal loans, students may get unsubsidized government loans or private loans from commercial banks and other lenders. Those private loans may carry variable interest rates and may require payments while the student is still in school. It’s also important to note that students who default on their loans will ruin their credit rating, but bankruptcy generally will not allow discharge of student debt.

As noted by Consumer Reports, many students don’t understand the loans they have. The Institute for College Access and Success reports that data on student debt load isn’t readily available from most private lenders.

In addition to holding the line on interest rates, Congress and Obama should act to require greater transparency. Students and families need clear information to get the best deals on loans and to minimize borrowing. Education leaders and public policymakers need comprehensive data on student loans so they will understand the effects of their decisions. The work study and Pell grant programs must be sustained for financially needy and academically able students so they don’t have to borrow more to complete a degree.

Despite the debt burden, higher education remains the surest path to prosperity for young Americans. According to a report released in January by Georgetown University’s Center on Education and the Workforce, the overall unemployment rate for recent U.S. bachelor’s degree recipients was 8.9 percent, compared with 22.9 percent for recent high school graduates and 31.5 percent for recent high school dropouts.

College grads are more likely to be workers and higher earners whose taxes will support public services — such as affordable higher education for the next generation.

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