Total outstanding student debt has climbed past $1 trillion, more than total credit card debt, and a record number of people carry that debt, with the average load standing at $26,000, double what it was in 1995. Meanwhile, the rates on federal Stafford loans are set to double this summer from 3.4 to 6.8 percent.
On Wednesday, Sen. Elizabeth Warren (D-MA) introduced her first standalone bill to address the interest rate hike. In a speech from the floor introducing the bill, she pointed out that banks get access to loans through the Federal Reserve discount window with interest rates at about 0.75 percent. If the government can afford to lend money at that rate to banks, she argued, it should be able to afford to do so to college students who are getting an education and learning skills, which benefits all of us in the long run:
Warren is not the only one looking to take action on the student debt crisis. The Consumer Financial Protection Bureau (CFPB) announced a set of proposals on Wednesday to ease the repayment of private student loans, which usually have higher interest rates and fewer protections than federal loans. It suggested that borrowers who pay on time be allowed to refinance to lower interest rates and that those who fall behind on payments have access to income-based repayment plans. It also urged policymakers to allow the holders of private loans to enter rehabilitation programs to help borrowers exit default and repair their credit that are available to those who have federal loans.
Help could not come too soon. The first three months of this year saw record numbers of Americans defaulting on their student loans, with 6.8 million federal student loan borrowers in default.
And the debt load that hangs over many young graduates has ramifications for the larger economy: Their homeownership rates have plummeted, as many can’t qualify for mortgages or afford the high down payments. In fact, the money spent on paying back student loans could instead be used to buy 155,413 homes. Without such a burden, graduates might instead be able to help push along the housing recovery.