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Just a Bailout, Not a Solution (Gwen Moritz Commentary)

4 min read

Through a combination of good luck and good planning, I have avoided any personal experience with student loans. My parents paid for my education, my in-laws paid for my husband’s, and we set money aside every single month for 20 years so we could pay it forward for our two sons.

If you think I should resent President Biden’s student loan forgiveness program because my family won’t benefit, you will be disappointed. The money we saved for our kids was spent on exactly what we wanted to buy. I don’t resent not needing loan forgiveness any more than I resent paying taxes when there are people who don’t earn enough to owe any.

If you think I should praise Biden’s plan, you will also be disappointed. Assuming it’s legal, it will help a lot of people to varying degrees in the short term. But it does absolutely nothing to fix the underlying reasons for the student loan crisis. It isn’t a solution; it’s just a bailout.

Biden’s loan forgiveness does not make college more affordable. It doesn’t change the terms of the remaining balances. It does nothing to ensure that barely adults understand the loans they take out.

Let me quote a co-worker who is still working on loans she received as a first-generation college student more than 15 years ago: “I’m a firm believer that just handing out student loans to 18-year-old kids the way they do is predatory in and of itself.”

As a general rule, kids don’t understand how hard it is to pay back $10,000 or $20,000 or $100,000. They don’t understand that student loans are a special kind of debt that can hang over them for decades or that they may be incentivized to delay payments to their detriment.

What we really need is creative thinking on how to satisfy our never-ending need for an educated population without throwing up roadblocks for promising young people who are not as lucky as I was. Here are some questions bouncing around in my head:

 Could student loans be dischargeable in bankruptcy like loans taken out by full-grown adults? This would undoubtedly change the relationship between the lender and the borrower, but why should student loans be sacred?

 Shouldn’t colleges have some skin in the game? U.S. Sen. Tom Cotton has proposed legislation requiring colleges to become guarantors of up to half the value of future federal loans made to the students they admit and oftentimes encourage to keep borrowing.

 Could the federal government, as the primary lender, create more favorable terms? Direct federal loans currently carry interest rates of 5% to 7.5%, and I can’t help contrasting that with the 1% charged to businesses that didn’t use federal Paycheck Protection Plan money for payroll and other approved expenses. 

 What would happen if, instead of a blanket forgiveness of $10,000 (or $20,000 for Pell Grant recipients), Biden forgave the balances of everyone who had already repaid at least as much as they originally borrowed? It’s a disgrace that many of our neighbors have made payments for decades only to owe more than they borrowed.

Tony Williams, director of the the state Department of Commerce’s Arkansas Student Loan Authority, told me that ASLA still holds about 18,000 loans made in 2010 or earlier as part of the defunct Federal Family Education Loan program. The combined balance is just over $100 million, meaning the average balance is about $5,500. The average borrower is responsible for 2.5 of those loans, which means some 7,200 borrowers have 18,000 loans that are at least 12 years old.

When we talked, Williams was hopeful that these old-school FFEL loans would be eligible for Biden’s loan forgiveness, but there was no guarantee. What’s more, the federal pause in repayment and interest that has been renewed repeatedly during the COVID pandemic did not apply to FFEL borrowers. 

[Update, Sept. 29, 2022: The Biden administration announced on Sept. 29 that loan forgiveness would be available for FFEL borrowers who had applied for consolidation before Sept. 29.]

I doubt many Arkansas Business readers still have FFEL loans, but your employees might. It would be a service to encourage them to convert, right away, to federal direct loans. Williams says it’s easy to do — no cost for converting, no appreciable difference in the interest rate.

I also learned that ASLA has started making private student loans. Anyone with a private student loan carrying an interest rate above 5.5% should look into refinancing with ASLA.

Gwen Moritz is a contributing editor at Arkansas Business Publishing Group. Email her at gmoritz@abpg.com
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