Make student loans more affordable, says Sen. Elizabeth Warren

Sen. Elizabeth Warren, D-Mass., spoke last month at the Education Writers Association conference in Boston.  Credit: Mikhail Zinshteyn, National Education Writers AssociationThe federal government should stop making profits from student loans, said Sen. Elizabeth Warren, D-Mass., a leading consumer activist and advocate for student loan reform in Congress.
Warren, citing a Congressional Budget Office report, said the government stands to bring in $51 billion in profits from student loans this year, a disputed figure that has economists taking sides and has left Warren open to criticism.
With student-loan debt nearing $1.2 trillion, “it’s a threat to our students’ futures” and to the economy, Warren told higher education journalists Sept. 28 at a conference at Northeastern University, where she outlined her ideas for making both loans and college more affordable.

Highlights of Sen. Warren’s Speech
Click here for a full transcript.
College affordability:
“More and more low-income and middle-income students just can’t afford to pay the high cost of college. But if those kids want a shot at a stable future, the kind that comes with a college degree, then they can’t afford not to pay, either. So they take on loans to finance their education. That debt is adding up, the student-loan debt, and now approaches $1.2 trillion; and a huge portion of this debt rests on the shoulders of young people who are struggling to keep up with mounting bills at the same time that they’re trying to launch their lives.”
The threat from big student loans:
“Student-loan debt is a threat to our students’ futures, and it’s also a threat to our economy. (I) don’t know if you all saw it, but there’s a recent report from the Consumer Financial Protection Bureau, and it cited student debt as a serious obstacle to home ownership and saving for retirement. The Federal Reserve came out with a study earlier this year that made it clear that education debt is dragging down the family budget and poses a risk to the economic recovery.”
The role of the federal government:
The federal government can’t solve this problem alone, but the federal government can, and should, leverage its dollars to push for improved educational quality and lower tuition costs. In the same way that the federal government helped build the national highway system across the country by partnering with the states, the federal government could partner with the states to help lower the costs for public higher education.
Congress could provide matching funds to the states, where the states agree to provide better funding for public colleges and where the colleges themselves agree to manage the costs better for their students. Sure, there are complications about how different states and different schools can meet their goals, but heck, there were complications in how to build roads through mountains and across deserts, but we managed to solve those problems.”
Dealing with defaults:
“Here’s a simple place to start. Give colleges some skin in the game. When borrowers default on their loans, students and taxpayers feel the effects of that. Colleges should feel some of that heat, too. Schools that run programs that result in high default rates should feel the impact of their failure to prepare their students for economic survival. And if we save money by getting colleges that perform poorly to have to pay something back into the system, we can use that money to help reward the schools that keep college costs low.”

Over the summer, Warren was a tenacious critic of both Republican and Democratic bills aimed at preventing student loan rates from doubling on July 1 from 3.4 percent to 6.8 percent. As EdSource Today has reported, the final legislation passed by Congress ties rates on federally subsidized and unsubsidized Stafford loans for undergraduate and graduate students and PLUS loans for graduate and professional students to the 10-year Treasury note. Interest rates are capped at a fixed amount for the life of the loan.
Warren co-sponsored an alternative bill, the Keep Student Loans Affordable Act of 2013, which would have rolled back interest rates and frozen them for a year at 3.4 percent. During that year, Warren and her colleagues planned to reform the student loan system to eliminate profits, provide better consumer protection and address “the college affordability problem,” which, she says, forces families into debt in the first place.
“More and more low-income and middle-income students just can’t afford to pay the high cost of college. But if those kids want a shot at a stable future, the kind that comes with a college degree, then they can’t afford not to pay, either,” Warren said. “Education is the path. It is the opportunity for kids. It is the chance for the boot-strappers to get ahead. It is the chance to build a better future.”
The bill failed, but Warren said she is continuing to press for the changes proposed in the bill and other reforms. They include:
Eliminating government profits from the student loan program
Reducing the burden of student debt on existing borrowers by letting them refinance their loans during this period of historically low interest rates
Restoring basic consumer protections, such as bankruptcy relief. Under current law, student loans cannot be dismissed when someone files for bankruptcy protection.
When asked what the likelihood is that this Congress, one that can’t even agree on keeping the government open, will act on Warren’s proposals, she was undeterred and recalled how, as a Harvard law professor, she persevered in getting Congress to approve creation of the Consumer Financial Protection Bureau to protect homeowners and investigate the role of banks in the mortgage crisis.
“So my bottom line on this is, you get the things you fight for. You get the things that you make a priority. You get the things that you get enough people out there who see it, who see the problem, and who see a possible solution, and therefore get behind it,” Warren said.
Advocates for college access agree. “She, more than perhaps anyone else, focused attention on the fact that the government is making billions of dollars off student loans,” said Pauline Abernathy, vice president of the Oakland-based Institute for College Access & Success (TICAS).
Abernathy said that just by speaking out, Warren has impelled change. In August, during a speech at the State University of New York, Buffalo, President Obama discussed steps his administration has taken to protect students, such as establishing a consumer watchdog to help students and families select the best loans for their circumstances and to launch a pay-as-you-go option that allows students to repay their loans based on their earnings to ensure that payback rates are manageable. Then the president gave his support to Warren’s key issue.
“Here’s the bottom line – government shouldn’t see student loans as a way to make money; it should be a way to help students,” Obama said to applause.
Abernathy said those reforms are a sign that Warren has moved the debate in a significant way. “It takes people like Warren to give it the urgency and help it move forward,” she said.
The urgency for Warren, Abernathy and other advocates is that students and their parents are increasingly turning to loans to pay for higher education as college costs become out of reach for most families. Nationally, about 11 million students take out college loans each year;  608,000 in California. One reason loan numbers are spiking is that college costs have soared since 1982-83, by 257 percent at four-year state colleges and universities and by 166 percent at four-year private colleges and universities, according to the College Board. At the same time, state support of public colleges and universities slipped. State funding for public universities dropped by 23 percent between 2007 and 2012, Warren said. State support for California State University has dropped by 22 percent since 2007-08, a decline of about $600 million, and by about $900 million for the University of California.
The Institute for College Access reports that two-thirds of college seniors in the class of 2011 owed money when they graduated – an average of $26,600 each. The load is lighter in California. According to the Institute, 51 percent of college students have loans, averaging just under $19,000 per student. It’s a little lower for University of California students, and much less for students at California State University, who average about $12,411 in loans.
“The debt loads that people are taking out to finance their lives are crushing us, and student loans are the worst of them,” Warren told reporters at the Education Writers Association meeting in Boston. “They’re the worst because they start early, when you’re trying to launch a life, when you’re most vulnerable, when you have the fewest resources.”
A recent report by the Consumer Financial Protection Bureau warns that heavy debt also deters college graduates from giving back to their community through public service careers, because they need high-wage jobs to pay off their loans.
“In effect, student debt may be driving young graduates away from lower-paying public service careers in favor of more lucrative work in the private sector. Some have raised concerns that student debt is exacerbating existing workforce shortages in public schools, hospitals and in rural communities,” cautions the bureau.
Warren agrees that the consequences are dire unless the government takes steps to protect borrowers and make college more affordable. “The debt will kill us. It really will. It kills hope. It kills opportunity.”

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