Allow Students to Refi Loans

Future Earnings or Long-term Debt?

I should start by saying that I have an emotional interest in this subject: Our oldest daughter has outstanding college loans that she continues to defer while looking for a job in her career; her total payment continues to rise because of high interest.

I’ve been known to call for a government bailout for college students weighed down by loan debt because it seems only fair since Wall Street was bailed out in 2009. I agreed with that decision, which was made not only to prevent another depression but also to be an investment in our country’s future growth. After reading a number of articles dedicated to solutions for the more than $1 trillion student loan debt, I no longer support a bailout because 1) the federal debt (currently more than $16 trillion) needs to be reduced not increased, and 2) student loan debt is ultimately the responsibility of the borrower — not the rest of the country that is still trying to recover from the last “Great Recession” (also referred to as the “Lesser Depression”). Not that us common folk were responsible for the “games” being played on Wall Street, but the fallout from the failure of mortgage lenders, other financial institutions and some large auto companies would have been much more far-reaching.

However, college grads — with a current average debt of $26,000 — should be cut some slack. Those graduating after 2007 have seen unemployment rates rise from less than 5% to nearly 10%. Many who took jobs are underemployed, and because of high debt are not contributing to the country’s growth as much as former grads. Many have moved back home with Mom and Dad and are sapping their parents’ contributions to growth as well as their parents’ contributions to their own retirement funds.

Allowing college students to refinance their government and private loans’ interest at current low rates could be an investment in their and the country’s future. In fact, Senator Sherrod Brown (D-Ohio) calls his recent proposal the “Refinancing Education Funding to Invest for the Future Act.”

It’s been reported that about 60% of all federal student loans carry interest rates above 6%; privates loans’ interest rates can average 8% to 10%. Regarding the federal rates, which are set to increase July 1, many citizens and legislators are upset that the government is making record profits off “the college student,” who — it’s predicted — will not realize the earning potential of a higher education, as past generations have. Instead, they will be psychologically and literally burdened by their own debt as well as by the current and growing federal debt … and, any money they make will go to pay off these debts rather than allow them to save and spend for home mortgages, new cars, nice furniture and clothes, and other miscellaneous consumption that spurs the economy.

Graduates should take advantage of the income-based repayment (IBR) plan which requires them to commit a given percentage of their annual income to pay down the loan. Because of a 15% cap on the borrower’s income, the IBR’s monthly loan payments can be much more affordable than traditional loan payment plans. Additionally, after payments are made regularly for 25 years, the unpaid balance of the loan will be forgiven.

Other “forgiveness” plans include: volunteering for the Peace Corps or AmeriCorps; signing up with the Nursing Education Loan Repayment Program or the National Health Service Corps; teaching in low-income schools — especially beneficial to math, science and special education teachers; committing as much as 10 years to a public service job (i.e. social work, child care, law enforcement, working with the elderly and/or disabled). Noteworthy: Nursing and teaching are two current career choices that are employing. Others include: engineering, information technology and sales.

Not all students need to enroll in four-year colleges; less expensive community colleges offer two-year associate degrees in many of today’s best-paying jobs, including: registered nursing, electrical engineering, dental hygiene and construction management.

And, what about high school students who have no desire to attend college? Not all decent-paying jobs require a bachelor’s or associate’s degree; students could receive certification for certain skills in high school, through vocational/technical education. Some business leaders are calling for a return to this non-academic curriculum for trades that include: carpentry, web development, child care, horticulture, cosmetology and auto maintenance.

But, about that bailout issue … I really don’t believe it’s a good idea to teach our young people — anyone, for that matter — that it’s OK to “take the money and run,” a la some high-profile Wall Streeters after their bailout. Investing in the future isn’t only about money; it’s about character-building as well.

* Stock photo.

4 thoughts on “Allow Students to Refi Loans

  1. Good observations, and timely, Nicki, there are many students who are making decisions even today to take on large debt to have that college experience that used to be so affordable, but no longer is. That used to pay for itself in the near term, but no longer does. I wonder how much of that higher cost burden to the student is due to our government pulling away financial support for higher education, like our Catholic church has pulled away their financial support for parochial education, making the current students bear the full brunt of the cost, where our generation was supported by the previous generations to make education affordable.


    1. Thank you, Mark!
      Yes, times have certainly changed, but education will always be impt to individuals’ & nations’ futures. We can’t afford not to assist the next generation’s pursuit of the same dreams we had. All of will be “crushed” by debt & loss of dreams.


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