Earlier this week, President Barack Obama outlined key changes to how millions of Americans repay their student loans. After years of typical political talk about student loan reform, someone finally took action on a growing issue that seriously threatens our economy.
Just six years after the Great Recession devastated the economy of the U.S., a new bubble appears ready to burst, and it’s a bubble familiar to many of you reading this column: student loans.
Most estimates peg the total student loan debt in the U.S. to somewhere around $1 trillion. That’s an astounding number. Not only are current and former students amassing gargantuan amounts of debt — unlike most loans — student loans can neither be refinanced nor can they be wiped out if you were to file for bankruptcy. If you hold student loan debt, you might not qualify for a mortgage, be able to finance a new car or start your own business.
In other words, student loans will follow you, haunt you and cripple you until you pay them off.
Thankfully, some in Washington, D.C., are finally starting to take action, including Obama.
An executive order signed by the president caps student loan repayments at 10 percent of one’s annual income and forgives loans after 20 years if they’re not paid in full. It’s the first steps to avoiding a crisis and helping millions of Americans buried in debt.
In Congress, Sen. Elizabeth Warren of Massachusetts is pushing a bill that would allow individuals to refinance student loans, something desperately needed for borrowers trapped with high interest rates without the opportunity to refinance at a lower rate.
Neither proposal is a perfect plan, but it’s far more than anyone’s taken in recent years to curb the looming storm generated by $1 trillion in outstanding student loan debt.
It is imperative that Congress takes action now and doesn’t play politics over student loans. Shuffling their feet, ignoring the economic warning signs, or committing partisan warfare over student loan reform seriously jeopardizes the U.S. economy and the ability for young people to get out from the Everest-sized mountain of debt accrued in recent years.
Our economy is based on the spending habits of consumers. If student borrowers can’t qualify for loans to buy houses, cars or start businesses, what’s the future of the American economy or, for that matter, the country?
The cost of higher education has skyrocketed in recent years, and in many cases, the only way to afford college is through student loans. Loans keep the dream of a college education alive for millions of Americans, but that dream quickly becomes a nightmare following graduation.
Thoughts of paying more than a monthly interest payment on student loans are nothing more than distant fantasies for young people struggling to find a job with decent pay. With student loan reform, that fantasy gets a little closer to reality, and the stranglehold around the necks of millions might soon be lifted.
Some might disagree with the idea of providing solutions to the student debt crisis. After all, students should understand the risks of loans before borrowing, right?
Students certainly need to understand the risks of borrowing before they agree to bury themselves in debt, but treating them like indentured servants is not the right solution.
Still think we should ignore the problem? Here’s another consideration: To avoid a full-blown economic meltdown in 2008, Congress bailed out the big banks to the tune of $700 billion. If consumers are the engine that drives the American economy, what can be done for those buried in student loan debt?
In no way is this a call for the federal government to simply forgive $1 trillion in student loans: That would be ludicrous. Instead, we need to offer student borrowers options that allow to them to pay off their loans. Politicians are actually offering real solutions to the student loan crisis, and it’s time we support the reform proposals.
[Joel Mendelson is a UF graduate student in political campaigning. His columns appear on Thursdays. A version of this column ran on page 6 on 6/11/2014 under the headline "Obama gives hope to students with loans"]
