Home > Students > Congress Punts 1 Student Loan Problem, Ignores 1 Trillion Others

Comments 0 Comments

A fundamental principle of medical ethics is “Primum non nocere”: first, do no harm.

I was thinking about that as I read through the latest example of Congressional malpractice known as the Bipartisan Student Loan Certainty Act of 2013 (H.R. 1911). Its proponents claim the legislation will once and for all “fix” the student loan pricing problem by indexing the charge to the cost of 10-year government borrowing. However, the fact that the government doesn’t actually borrow that way when it funds its Direct Student Loan program suggests that what the Senate really accomplished was to tether this politically charged issue to something outside of their ability to control — then-current interest rates.

No wonder so many folks are so fed up by the government’s uncanny ability for making matters worse. But turning to the private sector isn’t the answer, because we’ve already seen what can happen under that scenario: Consumer-learners get lured into the predatory financing of unaffordable academic pursuits, despite less costly alternatives being available. Borrowers are continuously stymied by a bureaucracy that distances lenders from the inhumane consequences of their credit decisions.

Getting to the Bottom of the Student Loan Problem

Although their skirts are by no means clean in this regard, I firmly believe that only the government has the requisite resources to deal with the massive mess it’s helped to create. But not by enacting legislation like H.R. 1911 or taking similar actions as some states have done, because it only serves to institutionalize the unrelenting tuition spiral.

Instead, we should demand our representatives tackle this problem in a forthright manner by untangling the web of incentives that engendered it.

  • The tax code should stop rewarding schools for being in any activity that’s not directly involved in the development and delivery of educational content. I’m talking about sideline businesses — such as hospitality, entertainment and real estate development — that are shielded by the schools’ tax-exempt statuses. On the other hand, the code should provide incentives for institutions that eliminate costly redundancies through mergers and regionally-inspired operational consolidations.
  • The bankruptcy code should no longer punish financially distressed student loan borrowers whose debts are virtually prohibited from being discharged in court, especially when that emboldens private lenders to stonewall those seeking sensible loan restructures or much needed modifications.
  • The schools should not only be held accountable for their academic outcomes — as many politicians and pundits insist — but they should also be held financially responsible for their failures when public money is involved. I’m talking about chargebacks that are linked to cohort student loan default rates.
  • Student loans should be more fairly priced. If the government benefits by borrowing at the lower-cost, shorter-term end of the yield curve to fund its loan programs, so too should consumer-learners. And whatever interest rate add-on is needed to cover administrative and credit costs — such as for loan servicing, delinquency- and default-management — should be fully disclosed and rationalized in advance.
  • The maximum value of the government’s Direct Loan programs should be limited to no more than the annual salary a college graduate can reasonably expect to earn on the other side of his or her diploma (good data for that can be found here and here). Assigning different caps to specific areas of study can make sense as long as long as the Public Service Loan Forgiveness program remains in place to support those who plan to dedicate their careers for the benefit of others. The duration of these loans should also be extended — for those who need the added flexibility — provided all borrowers retain the right to prepay their debts in full or in part at any time without penalty.

Left in the Dust

The greatest challenge we face at this moment, however, has less to do with the price of new student loans than it does the $1.1 trillion that has already been drawn down. And while the government has made a decent effort to address this problem, too many borrowers remain unaided because their loans have been deemed ineligible for one reason or another.

This needs to be remedied. Quickly.

The government should expand its relief programs to include all student loans — without regard for origination source (government versus private), payment status (current versus past due) or any previous action (consolidation, forbearance) — so that they can be restructured in a way that makes it possible for all borrowers to repay all their debts in full.

This compendium of measures — revising the tax and bankruptcy codes, holding schools financially responsible for their outcomes, fairly pricing and structuring student loans, setting sensible loan limits and, most important, forthrightly addressing the existing debt — make sense for the benefit of the borrowers, their benefactors (the taxpayers) and the economy as a whole.

It also makes sense for us a society because it’s not enough to do no harm — we must also do what’s right.

This story is an Op/Ed contribution to Credit.com and does not represent the views of the company or its affiliates.

Image: iStockphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team