As expected, House Republicans voted to keep student loan interest rates low (who wouldn’t?) – but they did this by getting rid of a preventative health care fund intended for woman cancer screenings established by the Affordable Care Act. In a few months, the interest rate on subsidized Stafford loans was scheduled to rise to 6.8% from the current 3.4%.
President Obama took a firm position on higher education financing by asking Congress to freeze the student loan interest rates. All this was cleverly timed while campaigning for the youth vote last week on college campuses.
But instead of looking to score election year points over interest rates, President Obama and Democrats should push for a more robust student loan forgiveness plan.
Congressman Hansen Clarke (D-Michigan) recently introduced H.R. 4170, the Student Loan Forgiveness Act of 2012. H.R. 4170 would create a 10/10 loan repayment plan, which caps payments at 10 percent of a borrower’s discretionary income and can offer forgiveness in 10 years. It would also cap interest rates on all federal loans at the current 3.4% rate. A public service loan forgiveness program would also be established to assist borrowers who are working in public interest professions, which would offer loan forgiveness after 60 monthly payments instead of 120. And finally, some borrowers would be eligible for a federal loan consolidation to discharge private loan debt.
If the interest rates on federally subsidized Stafford loans doubles from the current rate, about 7.4 million students would be affected and the additional interest would cost an average of $1,000 more in payments overall. It’s estimated that a one year freeze on the loan interest rates would cost $6 billion.
Imagine the kind of purchasing power available if President Obama opted to help students save more than an average of $1,000 in payments by promoting a bolder student loan forgiveness program. Just using the GI Bill as an example: what was accomplished in financing education for some 16 million returning servicemen in the 1940s following World War II, economists found “that for every 1944 dollar invested, the country received approximately $7 in return, through increased economic productivity, consumer spending and tax revenues.”
If the period in which students are on the hook to repay loans is reduced and/or some loans are forgiven for those working in public service, people who had to borrow to attend college would have more money in their wallets. These borrowers could think about investing money elsewhere or maybe even consider starting a business on the side.
Ellen Brown of Truthout argues that the economy is in need of purchasing power and that funds used to service student loan debt could instead be purchasing goods and services. Orders for goods would increase with demand. In addition, production would increase and so would the hiring of new workers.
With a recent Gallup poll showing that younger voters may not bother to vote for President Obama – although they generally are supportive of him – the President and Democrats might want to go for a more provocative proposal on student loans such as promoting H.R. 4170 or something similar to it – instead of fighting over interest rates. With students graduating into a poor job market, the President is going to have to do something to win over young people who may already feel disillusioned with the weak job market.