Student Debt Totals $1.3 Trillion - and It's Hurting Growth
Last year, at the University of Minnesota in Minneapolis, I met Joelle Stangler, a sophomore who was the incoming student body president. Joelle had graduated from Rogers High School in Minnesota as the valedictorian, with a 4.12 GPA. Joelle doesn't lack motivation.
Both of Joelle's parents were teachers, and in fact she comes from a long line of educators going back six generations. But a couple of years ago, Joelle's mother made the difficult decision to quit her job as a 5th grade teacher to go work in the private sector to help send her four kids to college. Even with her mom's sacrifice, Joelle, who is finishing up her third year of college, already has $20,000 in student loans, and she estimates that her total debt will be around $35,000 by the time she graduates next year.
It didn't use to be this way. Things have changed a lot since my wife Franni and I went to college in the early 1970s. A full Pell Grant paid for almost 80 percent of a public college education. Today, it pays for less than 35 percent.
Today, the total amount of student loan debt held by Americans is more than $1.3 trillion -- more than the total amount of credit card debt in our nation. Student loan debt doesn't just affect the individual lives of the 40 million Americans who carry the debt. Student loan debt also has an enormous negative impact on our nation's economy. I recently spoke with Nobel Prize winning economist Joseph Stiglitz, and he explained that student loan debt dramatically limits people's ability to buy a home, save for retirement and start a business. These types of big-ticket purchases help keep our economy growing, and delaying these acquisitions is damaging to the long-term well-being of our country.
So students are coming out of college with crippling debt that holds them back. Yet we keep telling young people that they need to go to college in order to aspire to the middle class. And that's true; in fact, college graduates earn over 60 percent more a year than high school graduates. We should be encouraging more Americans to get a college degree, but they shouldn't have to take on huge amounts of debt that will take decades to pay off.
Part of the reason that this debt is long term is because borrowers are paying high interest rates. Many college graduates are locked into loans with interest rates as high as 10 percent, which makes it all the more difficult to pay off. When interest rates are low, homeowners, businesses and even local governments regularly refinance their debts. However, the federal government -- despite being the biggest student lender by far -- offers no refinancing option to student borrowers. Once you graduate with high interest rates, you're stuck with that high interest rate forever.
So I'm doing something to fix that problem. Earlier this year I joined Sen. Elizabeth Warren from Massachusetts in introducing the Bank on Student Emergency Loan Refinancing Act. Our legislation will allow borrowers to take advantage of lower interest rates and refinance their student loans. This will help millions of Americans, like Joelle, cut down their debt and keep more of their hard-earned paychecks.
I also wrote two bipartisan bills with Republican Sen. Chuck Grassley of Iowa that would help students and families better understand college costs before taking on debt. Our Net Price Calculator Improvement Act makes online cost-calculation tools more user-friendly in order to give students and their families a better estimate of college expenses before they decide where to apply. Sen. Grassley and I have another bill that will require schools to use a universal financial aid letter. Right now, these letters are confusing -- they often don't clearly explain the difference between a grant and a loan, which means students and families may take on debt that they don't know they have to pay back. Our bill would make sure that students and their families get uniform information so they can make apples-to-apples comparisons between what the different schools are offering.
We have a lot of work to do and a long way to go to reduce student debt and make college more affordable. But it's critical that we do. Addressing college affordability will not only make college accessible to more Americans, but it will also help more young graduates start a business sooner, buy a home earlier and start a family -- things far too many young people have been forced to delay because of being saddled with college debt. That's not only good for those graduates, but is enormously beneficial to our economy.
This story is an Op/Ed contribution to Credit.com and doesn't necessarily represent the views of the company or its affiliates.
Al Franken represents Minnesota in the United States Senate. First elected to the Senate in 2008, and re-elected in 2014, he currently sits on the Health, Education, Labor and Pensions (HELP) Committee; the Judiciary Committee; the Energy and Natural Resources Committee, and the Committee on Indian Affairs.