Student loans lead to servitude
Published: Sunday, February 23, 2014 at 6:01 a.m.
Last Modified: Friday, February 21, 2014 at 4:55 p.m.
The letter was short and sweet, just four sentences telling me that I was free from the shackles of my student loans.
The message arrived last week, nearly nine years after my last graduate school class. Thanks to a major assist from my wife, I finally paid back more than $27,000 in student loan debt.
The next generation of students has a bigger burden to bear. The average debt load for a college senior graduating in 2012 was $29,400, according to the Institute for College Access and Success.
Student debt has grown at an unsustainable pace. Total student loan debt in the U.S. reached a record $1.08 trillion in December, a figure that has increased since the Great Recession even as credit-card and mortgage debt declined.
Student loans have even been blamed for holding back the economic recovery. A recent report that found the number of first-time home buyers is well below historical norms, a trend blamed on student loan debt limiting major purchases.
The problem has led to a flood of ideas for controlling and repaying college costs, including a proposal this month from U.S. Sen. Marco Rubio, R-Florida.
Rubio has personal experience with the issue. In a speech announcing his plan, Rubio said his undergraduate loans attending the University of Florida were manageable but his law degree at the University of Miami landed him $100,000 in debt.
He proposed having an income-based system be the automatic repayment method for student loans. Under the system, graduates make payments in proportion to the amount they earn.
Income-contingent loans have actually been around for a while. The current option limits federal student loan payments to 10 percent of the borrower's discretionary income. Those making payments on time for 20 years can have their loans forgiven.
Rubio also is promoting the idea of private investors paying a student's tuition in exchange for a percentage of their income for a set period of time after graduation. Companies such as Upstart, founded last year by former Google executives, are starting to offer such services online.
Critics have compared the concept to indentured servitude. An alternative approach would be the system in place in Australia: funding college through a tax on all graduates pegged to how much they earn.
The state of Oregon is studying a proposal dubbed "Pay It Forward" that would eliminate public university tuition in favor of such a system. Students would be required to pay a percentage of their incomes for a certain number of years after they graduate.
Other proposals would allow student borrowers to refinance at lower rates or declare bankruptcy in cases of hardship. Of course, all of these ideas fail to address the problem driving rising student debt: the constantly increasing cost of a college education.
Addressing that issue will require states to reverse declining fiscal support for higher education, along with universities controlling administrative expenses and other costs that have little to do with the classroom.
In the meantime, students deserve new options for paying for college. They shouldn't have to sell themselves into indentured servitude in order to earn a degree.