Obama stuck on Band-Aids while students are stuck with debt

When President Obama rolled out his latest student debt initiative from the East Room of the White House Monday, most of an estimated 38.8 million student borrowers who strain under the cumulative load of $1.2 trillion of debt said, “What about me?”

The executive order seeks to expand a 2010 law that adjusts some graduates’ repayment plans to decrease monthly payments, and caps the number of years they have to continue to pay. The president said the plan could reach an additional 5 million borrowers, but the current program, called “Pay as You Earn,” currently serves only 200,000 of the several million eligible, so the White House claim of who might benefit under the new order is an absolute maximum, not a practical estimate.

While the president touted his move as part of his “Year of Action,” the executive order and the campaign-style call for Congress to pass legislation sponsored by Sen. Elizabeth Warren, D-Mass., and Rep. John Tierney, D-Mass., are of little comfort to the overwhelming number of former students with outstanding debt.

“Obama's student debt executive order puts a Band-Aid on a gaping wound,” said Alexis Goldstein, communications director for Other98.com. “The best way out of the country's student debt trap is not to make the debt more manageable, but to commit to making public higher education tuition free.”

“Most people know that college costs are too high, but few know how little it would cost for the federal government to cover tuition at every two or four year college in the country,” said Andrew Ross, Professor of Social and Cultural Analysis at NYU.

Strike Debt, a group with which Ross is affiliated, calculates that once the government strips away what it already spends to subsidize higher ed, including often predatory for-profit colleges, the amount of additional money needed would be less than $13 billion, “a fraction of one percent of yearly spending.”

Indeed, going after the for-profit institutions, which is not a part of the current White House pitch, could help a large number of students and the federal bottom line.

Goldstein notes that 1-in-10 students attend a for-profit college, and those schools make 75 percent of their revenue from tax-payer-funded aid (which includes outright gifts such as Pell grants). Goldstein advocates stemming the flow of federal money to for-profit schools.

The president’s program also does little to stem the perception issue.

“The problem is we’ve normalized student debt in this country and made it a personal problem,” said Mark Huelsman, senior policy analyst at the public policy think tank Demos. Huelsman said when the government characterizes student debt as it would consumer debt, it implies the borrowing student has “done everything wrong.”

“The problem is,” added Huelsman, noting that government and schools alike urge students to attend college and better themselves, “people who take on student debt have done everything right.”

But members of Congress could do more to lessen the amount of debt accumulated in the first place. If they not willing to take the leap suggested by Strike Debt and fully fund higher education for everyone, they could move to expand federal scholarships such as Pell grants. But the House GOP budget plan actually proposes the opposite, freezing the current $5,730 amount for the next ten years and eliminating the guaranteed funding that feeds the program.

That budget, like the Warren-Tierney bill, is pretty much DOA in a polarized Congress, but both sides have been less-than-diligent in overseeing the companies administering the federally backed student aid programs.

Just last month, the Department of Education quietly released a document stating that Navient Corp., a former unit of education lending giant Sallie Mae, is being considered for a decade-long contract allowing it to originate, distribute and collect payments on new federally administered student loans and grants.

But two weeks earlier, the Justice Department agreed on a $97 million penalty assessed against Sallie Mae and Navient to settle claims that it overcharged members of the military on their loans.

Allowing a private lender with a long predatory track record to continue to profit off a flawed system is another example of what NYU’s Ross called “a grisly substitute for governmental responsibility.”

And today’s proposals only have the potential to help those still in good standing. Some 7 million borrowers of federal and private loans are already in default, and 11 percent of all the money lent is over 90-days delinquent. Nothing in the White House executive order will put a dent in those debts.

Goldstein from Other98 summed it up this way: “Rather than meaningfully committing to curing the student debt trap, the Administration seems content to merely treat the symptoms.”