Obama and student loans

At least he is thinking about real people’s concerns

How many people actually lie awake at night worrying about the ratio of federal debt to GDP? How many really lose sleep over tort reform, farm subsidies, campaign finance or even immigration?

The answer is probably not many – at least not compared with how many fret over personal financial situations. And student loans are some of the biggest and fastest growing contributors to those worries.

How refreshing, then, that the president of the United States would notice that. Few of the others vying for his job have connected to anything so mundane.

In his 2010 State of the Union speech, President Obama proposed an income-based repayment plan for student loans, which Congress then enacted. It limits payments to 15 percent of borrowers’ discretionary income. That is set to go to 10 percent in 2014.

Obama is now proposing to make those benefits effective in 2012 and to make it easier for borrowers to participate in the program. He also wants to offer a discount to borrowers seeking to consolidate existing student loans, about 6 million of whom have current direct loans and older, higher cost, Federal Family Education Loans.

This is seemingly esoteric stuff, but it is a reality millions of families face. It is an unhappy paradox that as the world shifts toward an economy based increasingly on information, knowledge and intellectual capital, the education essential to financial success is becoming increasingly more expensive. According to the Chronicle of Higher Education, 123 U.S. schools now charge more than $50,000 per year in tuition and fees. A survey released last week by the College Board says fees, room and board at four-year public colleges now averages more than $17,000 per year. At private schools, the comparable cost is more than $38,000.

At those prices, the days of working one’s way through school are over. If 18-year-olds could make $40,000 per year, they would not be so eager to go to college.

What is more, there is no reason to think the situation will improve. A study by the University of Virginia says that from 1985 to 2005, the percentage of revenue received by colleges and universities from tuition rose from 22 percent to 36 percent. As states face increasing pressure to cut spending, reducing the funding for higher education is all but unavoidable. That inevitably shifts costs onto students and their families.

That usually means borrowing money. The question then becomes: Do parents mortgage their homes, endanger their own financial well-being or put their retirement at risk? Or do they send their kids out into the world with an unmanageable debt load?

It is a choice with no good answer. In a nation that has largely outsourced its manufacturing sector, forgoing higher education is not an attractive option, at least not for anyone with middle-class aspirations. The military and scholarships can help with college costs, but neither are options available to all.

The more typical result is debt, which can have ramifications far beyond those affecting an individual or even a family. How, for example, can a college grad with $20,000, $50,000 or even $100,000 in debt take a job as a teacher or a cop? Not everyone can be a doctor or an engineer, so with debt levels like that, we are pushing the best and the brightest away from the most important jobs and toward areas that may be more immediately lucrative but that are ultimately less productive.

Will Obama’s ideas fix the situation? No, but they could help. And millions of American families can take heart that someone is at least voicing their concerns.