Recently, student loan debt has become a topic of major discussion. Outside of higher education, it’s led to some inflammatory headlines that read something like “Is College Worth It?” and inside it’s led to concerns about students leaving with degrees and increasingly larger student loans. To try and tackle this issue, Senator Elizabeth Warren and famed personal economist and television host Suze Orman attended Politico’s “Solving for Y” event to discuss what they’re doing to help address student loan debt.
Senator Elizabeth Warren kicked things off by stating that there is currently $1.2 trillion in student loan debt. Sen. Warren has been one of the biggest proponents of student loan debt reform since arriving in the Senate in 2013, most notably introducing a bill that would radically overhaul the way that student loans are handled. The bill would’ve reduced all loan interest rates to 3.6, regardless of when the loan was taken out, and would allow student loans to be discharged in bankruptcy.
The bill died after receiving 58 votes, with three Republicans joining on with Democrats. She didn’t pull any punches when asked why it failed. “The government makes a profit off of these loans. Between 2007 and 2012, these loans are on target to make about $66 billion in profit.” Warren went on to say that the profits from these loans have already been baked into future budgets.
Suze Orman spoke at length about the personal finance side of the student loan debt issue. Echoing the Senator, she pointed to the inability of students and their parents to discharge the loans through bankruptcy. And this inability to discharge debt leads directly to two of the biggest dangers of the increase in debt:
Both agreed that the problem is like “a box full of grenades with the pins pulled.” And acknowledged that an increasing number of people are taking their debt into older age which typically requires them to tap into their retirement savings. Orman reminded attendees that even their social security could be garnished to pay off their student loans.
Warren and Orman also highlighted a number of solutions that could help alleviate the student loan debt issue, outside of the aforementioned bankruptcy change:
The strongest policy statement came when Sen. Warren said that colleges need to have some skin in the game. Currently they receive loan money and push students out, regardless of their job prospects or debt situation.
She then referenced the “1-25-50 Rule” that says 1 in 10 of students attend for-profit institutions, those schools receive 25 percent of federal loans, and are responsible for 50 percent of defaults. This more nuanced approach that Warren touched on recognizes the diversity of students, institutions, and their borrowing habits.
Underscoring her point to some extent, the Department of Education yesterday released a new report highlighting schools that were at risk of losing access to federal funds as part of the Obama Administration’s new gainful employment rules. 21 institutions, primarily for-profit schools, received sanctions and will be barred from receiving federal loans. More institutions avoided sanction due to some changes in classification to loans serviced by multiple lenders.
Orman and Warren were blunt in acknowledging that the challenges are immense when it comes to solving the issue. Warren spoke directly to the strong opposition put up by the banks and the government, specifically those concerned with the impact on the budget due to the smaller amount of revenue from loan interest rates. Orman reiterated that without the ability to discharge the debt, most families would still have limited options to pay off the debt.
However, they pointed to a growing awareness of the problem and the increased grassroots efforts as a positive sign. While a comprehensive solution is unlikely to happen in the immediate future, institutions can be proactive in supporting and educating incoming students, particularly from high-risk demographics, about the risk that debt can pose in the future.