Aug. 16, 2006 – With student debt on the rise, activists recently employed public pressure to convince a federal panel laden with corporate representatives to drop a recommendation that more families take on private loans for education, a move they argued would exacerbate student debt.
The recommendation was made by the secretaryâ€™s Commission on the Future of Higher Education, which was formed by the US Department of Education last September in order to design a â€œnational strategyâ€� to increase access to higher education, including changes to the financial-aid system. The Commission is made up of professors, university presidents and representatives from companies such as IBM, Kaplan and the nonprofit lending company EduCap.
The Commission will issue a final report in mid-September, according to Department of Education spokeswoman Samara Yudof.
In a previous draft of the report, the Commission recommended that families look to private loans to fund education costs in order to free â€œscarce public funds to focus on aid for economically disadvantaged students and families.â€�
But the Commission dropped the text after student associations and advocacy groups called for its dismissal, said Jay Bhatt, president of the American Medical Student Association, which lobbies on issues ranging from reduced resident work hours to policies that make medical school more affordable.
The recommendation could have â€œforced potentially millions of more students into private loans instead of safer federal loans."
â€œWe were able to engage enough folks to call the public comment line,â€� he said. â€œWe talked about how we strongly opposed the language regarding private loans.â€�
Bhatt explained how Association membersâ€™ debt levels can affect the general population.
â€œAt the end of the day, when theyâ€™re applying for residency positions, they think about the kind of debt theyâ€™ll have graduating,â€� he said. Many students choose more lucrative specialty fields over primary care, Bhatt said. That, combined with limits on the number of doctors produced in the United States each year, leads to a dearth in primary-care physicians, especially in rural areas.
In addition to maintaining current federal loans, the American Medical Student Association and other scholar advocates would like to see the federal government work to reduce the cost of higher education and focus on increasing grants and lowering interest rates for loans, especially for low-income students.
The Public Interest Research Groupâ€™s (PIRG) Higher Education Project said more affordable tuition is key to reducing student debt and making higher education accessible to everyone who seeks it. The project supports student campaigns for tuition freezes and a block-grant program to encourage states to keep their tuition low.
Lauren Asher, associate director of the Project on Student Debt, said dropping the loan privatization recommendation avoids a dangerous shift to the increasing reliance on private companies, which often have higher interest rates and stricter repayment requirements, which increases student debt.
Advocates say loan repayments should be clearly connected to income and earning size.
She said the recommendation could have â€œforced potentially millions of more students into private loans instead of safer federal loans.â€�
According to the Project on Student Debt, which culled data from the nonprofit exam organization College Board and from federal agencies, the average student debt for graduating seniors increased from about $9,000 to $19,000 in the past decade. In 2004, one-quarter of seniors graduated owing student-loan debts higher than $25,000.
In 2004, private loans comprised 11 percent of student aid, up from 5 percent in 1999, according to a report released by the nonprofit exam organization College Board. In that same year, students borrowed $10.6 billion from banks and private lenders.
Private lending companies have seen their profits rise in the same time span. For example, Sallie Maeâ€™s profits went from about $500 million in 1999 to nearly $1.5 billion in 2003, according to the companyâ€™s annual financial summary report released for 2003.
The recommendation to shift to private loans was included alongside remaining suggestions that call for an increase in need-based aid, with a focus on Pell grants, which do not have to be repaid, as the best way to make higher education affordable and reduce debt.
Student advocates like Bhatt agree. reducing debt should be a priority. Bhatt added that the Commission should also include cuts in interest rates and reforms to make loan repayment schedules manageable.
This year, Congress passed a bill that increased interest rates for federal Stafford loans by almost two percentage points. The interest rate increase â€“ to 7.14 percent â€“ prompted many borrowers to consolidate their loans through both the federal government and private companies before the rates rose on July 1.
Reducing tuition is key to reducing debt, and many advocates support student tuition freezes or block-grant programs to encourage lower tuition.
The Project on Student Debt and other advocacy groups, including the National Students Association and the state Public Interest Research Groups (PIRGs) network, filed a petition in May with the Department of Education to reform the repayment system.
â€œ[The plan] would assure students that if they need to borrow in order to complete a degree, that theyâ€™ll have to repay the loan, but the repayment process will not erase the benefits of a higher education. The payments will be clearly connected to what you can afford based in your income and earning size,â€� she said.
The petition calls for the government to cap federal loans at 15 percent of a borrowerâ€™s discretionary income, and relieve remaining debt for those who have paid consistently for 20 years.
â€œAnd youâ€™ll have a light at the end of the tunnel. If you hit a financial crisis at some point in your life, [paying off student loans] wonâ€™t go on forever,â€� Asher said. â€œRight now, peopleâ€™s social security benefits can get garnished.â€�