Editorial: State can help refinance student loan debt

By The Herald Editorial Board

Betsy DeVos, secretary for the U.S. Department of Education, issued a dire warning Tuesday that student debt represented a “looming crisis in higher education,” as she spoke before a Federal Student Aid training conference in Atlanta.

Without a doubt, student loan debt has reached a record level: $1.52 trillion among 44 million borrowers. The debt owed on student loans is second only to mortgages and tops total U.S. credit card debt by about $620 billion.

In issuing her warning, DeVos pointed to that debt and noted that only 24 percent of student loan borrowers are paying either principal or interest on their loans. (DeVos didn’t specify whether she was including current students in that figure, those who typically don’t begin payments on their loans until after they’ve earned a degree or left school.)

DeVos, in her prepared remarks appeared to blame the recent increase in student borrowing on the Obama administration’s decision in 2010 to shift student loans to direct financing by the Treasury Department, rather than as private loans from banks subsidized by the federal government. Fact-checking by higher education and financial experts, as reported in The Washington Post and The Chronicle of Higher Education, refuted her charge.

Jason Delisle, for example, with the conservative think tank American Enterprise Institute, told the Post that cutting banks out of the federal lending program had played no part in the rise in student debt levels. Eligibility rules didn’t change with the switch, Delisle told the Chronicle. The rise represents an increase in students and in loan amounts.

So while student loans are likely not the next financial bubble to burst, average student loan debt of $35,000 among those 44 million still represents potential hardships for individual borrowers, especially as they begin careers and start families.

DeVos didn’t offer any solutions, such as increasing the amount and accessibility of Pell Grants, which would reduce students’ need to borrow.

But some solutions are becoming increasingly available, in particular at the state level, including this year’s passage by the Legislature of the Student Loan Bill of Rights.

Requested by Attorney General Bob Ferguson and sponsored by state Sen. Marko Liias, D-Everett, the legislation adopted earlier this year provides information and advocacy to borrowers to assist in their repayment of loans. It requires loan servicing companies to process a borrowers’ payments within one business day, requires prompt response to borrowers’ questions in writing and a refund of fees that are assessed incorrectly.

An advocate also is being established within the state Student Achievement Council to receive and review complaints from borrowers and to assist borrowers in applying for forgiveness or discharge of student loans. It also requires loan servicers to be licensed through the state’s Department of Financial Institutions.

The legislation also may lead to Washington state joining 15 other states who offer state-sponsored loan refinancing to students, which allows borrowers to apply for lower interest rates and shorter or longer repayment schedules.

The bill of rights requested a report from the state Institute for Public Policy that examined the programs offered in the other states and how students might benefit.

Released this month, the report shows that, like their counterparts nationwide, Washington state students are saddled with an average of about $30,500 in student loan debt, $24.4 billion among some 800,000 borrowers in the state.

The debt varies among borrowers. About 75 percent of those with debt from a two-year undergraduate program owe less than $5,000 up to $20,000, while 75 percent of those in four-year programs owe up to $30,000. But those in graduate and professional programs — such as medical and law school — owe the most; more than 50 percent in graduate programs owe between $30,000 and $75,000, while more than 50 percent of those in professional degree programs owed $100,000 to $150,000.

A state-run refinancing program, the report found, would help all borrowers save some money, but savings would be greatest among students in graduate and professional degree programs. A professional student, the report gave as an example, might save $19,000 refinancing to a five-year loan with a 4 percent rate. A four-year undergraduate, by comparison, might see about a $2,000 reduction in the overall cost of their student loans.

The program, either financed through program funds or by issuing bonds, would benefit more than just individual students and their families, the report said.

Many of the states with programs reported that refinancing student loans provided a boost to their economic growth by increasing the number of young families able to consider buying homes and by encouraging graduates to remain in the state or as a way to attract graduates from out-of-state to job openings.

As opportunities continue to expand for jobs and careers that require some level of education — from vocational skills certificates to professional degrees — assistance from the state that helps students pay for their education is a good investment.

Lawmakers should build on the success of the Student Loan Bill of Rights by passing legislation for a state student loan refinancing program.