Mountains of Student Debt, and the Political Will for Solutions Are at Hand

by Faiz Shakir, Amanda Terkel, Matt Corley, Benjamin Armbruster, Zaid Jilani, and Alex Seitz-Wald

One of the great hardships facing American college students today is student debt.

According to a recent report from The Project on Student Debt, the average student in the class of 2008 graduated with $23,000 of debt, "a figure 25 percent higher than what their older brothers and sisters owed when they graduated from college in 2004"; two out of every three college students now graduate with debt, and the Great Recession is requiring students to take out more loans than ever before. In the 2008-09 academic year, federal student loan borrowing "grew about 25% over the previous year, to $75.1 billion." A major reason for the ever-growing debt load America's students are taking on is the broken student lending system, a big part of which involves the government paying student loan companies to originate and service loans. The companies are the inefficient middle men that drive up costs for students without adding any value. To rectify this problem, progressives in Congress introduced the Student Aid and Fiscal Responsibility Act (SAFRA), which expands and improves successful student aid programs like the Pell Grant and the Perkins Loan program, and eliminates billions of dollars in subsidies to wasteful private lenders. Last September, by a 253-171 vote, the House of Representatives passed this landmark student lending legislation. Now, SAFRA is a Senate vote away from the President's desk, and a group of Republicans and conservative Democrats, buoyed by "an aggressive lobbying campaign by the nation's biggest student lenders," is all that stands in the way of creating a more just and cost-efficient federal student lending system. Additionally, there are reports circulating that Senate Democrats may pair their "overhaul of federal student lending with healthcare reform" in one reconciliation package, which would allow SAFRA to pass with a simple majority vote in the Senate and avoid a filibuster by lender-friendly conservatives.

WHY STUDENT AID REFORM MATTERS: Since 1965, the federal government has assisted students in paying for college through the Federal Family Education Loan (FFEL) program. While FFEL has helped many students afford college, it also extremely inefficient because the loans it provides are not made directly to students but rather through profit-seeking private student lenders. The presence of these lenders provides "a guaranteed rate of return for banks and other middlemen who provide capital for student loans," with taxpayers being "required by law to reimburse the banks for 97 percent of the losses" when students are unable to repay their debts -- essentially acting as a "lucrative form of corporate welfare." By 2006, loans made to students directly by the government were earning taxpayers two cents on every dollar, whereas the FFEL program was netting fifteen cents for every dollar for private lenders. Thanks to the $413 billion in outstanding FFEL loans, student lender Sallie Mae was the second-most-profitable company in the world in 2005. SAFRA would eliminate FFEL, cutting out the wasteful bank middlemen, and use the $67 billion in savings over 10 years to "raise Pell grants, improve access and completion rates," and simplify the college aid process. "The Obama administration has stepped in, in a very bold way, to fix aid programs and make them more effective," said Christine Lindstrom, director of higher-education programs for the U.S. Public Interest Research Group. "[SAFRA] is game-changing." As President Obama has said, the question when it comes to SAFRA is "whether we want to give tens of billions of dollars of tax dollars to special interests or whether we want to make college more affordable for 8.5 million more students."