Tim Mullaney: A student loan plan that could actually work

Every day’s a party of pity — and nowhere is that more true than when the subject is student loans, the $1.6 trillion bane of everyone from inner-city teens to 60-year-olds expected to cough up home equity for their kids’ college. The student-loan pity party will likely move to center stage Tuesday and Wednesday as Democratic candidates for president joust in their second set of debates. Where the 2020 candidates stand on student debt and college affordability How much call on our sympathy do college graduates deserve — especially when the median student-loan payment is $222 a month, according to the Web site StudentLoanHero.com? That’s comfortably below the median $2,500-a-month wage premium that college grads command, and half of an average new-car payment. Where the problems are So let’s look at what the problems really are — they may show us what solutions equity demands, and which can be managed within the fiscal mess former President Donald Trump will have left behind in 2021 or 2025. Chances are, they won’t look much like Sen. Bernie Sanders’ plan to wipe out all federal student loan obligations (a proposal Sanders clownishly compared to the Wall Street bailouts that were actually repaid, with interest) or even Sen. Elizabeth Warren’s plan to cancel up to $50,000 in debt for household earning less than $100,000 yearly, with even-higher earners getting partial forgiveness. Here’s why America’s $1.5 trillion student-loan crisis has spiralled out of control Student loan debt is owed by 45 million people, and has doubled since 2009. It’s sounds unhealthy, and is. But details like the following matter. First, average student loan debt for undergraduates who borrow at all is nearly $30,000 at graduation, producing about a $300 monthly payment. Median indebtedness is lower. So not all debt needs to be cancelled — for most, student debt is a rational investment made by adults. Warren arguing that a median borrower with a $200,000 income needs any help begs disbelief. About 40% of student debt is for graduate school, which is even more tied to earnings prospects. MBA students graduate with about $42,000 in debt, StudentLoanHero says. Companies surveyed by the Graduate Management Admissions Council planned to offer newly minted MBAs an average yearly salary of $119,000 this year. Doctors borrow $162,000 to $190,000, depending on the survey — but some specialties pay $500,000 yearly. Doctors’ and lawyers’ money woes are high-class problems. They might delay buying a house before they begin watching the Dow Jones Industrials

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 all day. But they’ll live. The people who struggle Now let’s drill into the people who struggle with loans. Students at for-profit colleges, many of them trade schools, default 48% of the time and often graduate from (or drop out of) dubious schools. That’s four times the default rate of state-college students, and 3.5 times the rate for non-profit private schools. All the ways student debt exacerbates racial inequality — ‘it’s like landing in quick sand’ The 15 schools with the highest default rates include no less than seven barbering and beauty schools. Number 1 is, I kid you not, Champ’s Barber School of Lancaster, Pa., whose average student has $9,500 in debt and a $98 a month payment. This points to the real problem underneath student loans, which is really privilege, job access and often race. If you can’t make a $98 loan payment, the issue is not the loan. (The default rate of Champ’s students is 58%, the U.S. Department of Education says). Defaults are highest among students who go to cheaper schools, especially trade schools and community colleges. Former recipients of federal Pell Grants, usually offered to students with family incomes below $20,000, also often struggle. Pell users borrow an average of $31,000-plus on top of their grants. They’re only paying that back easily if they boost their income fast. So how about we solve the problem for poor people, before addressing post-college suburbanites griping about their first adult decision? How about not worrying about debt of MBA holders, lawyers and doctors, whose borrowing was a sound investment? How about doing the piece of this that is most urgent, and that we can actually afford? Here’s the plan So here’s my admittedly incomplete student loan plan. • Expand Pell Grants radically, and tie repayment obligations of Pell recipients who still borrow to post-college income. It’s scandalous how little Pell grants have kept up with inflation. Today’s maximum grant of $6,195 covers tuition and fees at only one flagship state university — the University of Wyoming — according to the College Board. To create this program as a gateway to opportunity, and let it deteriorate to where it barely covers a third of in-state tuition at Penn State, compared to more than covering the average state-school tuition bill in 1980, is just shameful. We either care about the American Dream or we don’t. Doubling Pell Grants would cost about $30 billion a year, or $110 per American. • Crack down — hard — on for-profit schools, and excuse federal loan obligations for former students who aren’t working in their fields. The rules need to be straightforward: For-profit schools that don’t place their students in jobs, or whose default rates stay above 20%, can’t keep offering federal student loans. Today’s rules punish schools with 30% or 40% default rates. • Fund either tuition-free or debt-free state and community college attendance going forward. With most state schools still costing $15,000 or less, and many students already getting some aid, this is a manageable goal. Whenever Trump leaves office, there will be a trillion-dollar deficit to fix. Controlling the fallout from student-loan debt — the one debt class that is growing fast enough to risk a bubble — won’t be easy. It may be impossible to do everything. So, priorities. Those should be opportunity for people who struggle to access it, and justice for exploited people.



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