College Affordability Plan

Dear Kansans,

It is my core belief that the single most important tool for individual and collective success is a high quality education. I grew up in a family with five siblings and received free lunch at school as a child. But I was able to take out student loans, receive an outstanding college education and learn the skills I needed to form a foundation for a career in business.

Education is the catalyst for the American Dream, but partisan political wrangling is threatening that dream by saddling young people and would-be entrepreneurs with an overwhelming amount of student debt. The cost of higher education at public universities has tripled, and Americans now have more than $1 trillion in student debt.

I was able to graduate college, get a good job, and then take on the enormous risk of starting a small business. But as student debt grows, it means Kansans are less likely to start a business, take a risk, and create new jobs for the economy.

We can do better, and we can do more than simply throw more money at a problem that is growing exponentially. We can introduce common sense accountability reforms and help people understand the financial burden of a student loan.

Below is my plan to bring our exploding student debt crisis back under control.  It includes:

  • Bringing accountability to higher education spending, and reforming student lending
  • Reducing the markup on federal student loans, to make them more affordable and reduce default rates
  • Applying the “CARD” Act to student lending, to protect student borrowers from unscrupulous lending practices
  • Enhancing the online tools for understanding college debt, so all students are able to make an informed decision about how they pay for school
  • Reforming collections practices, to put an end to abuses which make it harder for students to pay off their debts
  • And protecting our veterans from predatory lending

Washington is broken because we are inhibiting, not encouraging the American Dream. We can do better for Kansas and for the nation.

Sincerely,

greg_sig.png

Greg Orman

1.     Reform Student Lending and Bring Accountability to Higher Education Spending

As I noted in my small business plan, the incentives are all wrong when it comes to higher education spending.  To remain competitive in the global marketplace, we need to keep college education affordable for the middle class. But rising college tuition makes that hard to accomplish.

Since 1980, the inflation-adjusted cost of college tuition at public universities has tripled and more than doubled at private universities.  Americans now have one trillion in student loan debt[1], up from just $350 billion a decade ago.[2]

The massive debt load students face upon graduation is now preventing many of them from being able to start their own businesses.  That’s why the Kauffman Foundation recently noted that student loan debt was among the top inhibitors to entrepreneurship and business creation.[3]

Student loan debt is now even becoming a problem for seniors.  Borrowers 65 and older now have nearly $20 billion in student loan debt, compared to just $2.8 billion a decade ago.  The Government Accountability Office recently noted that “Available data indicate that borrowers 65 and older hold defaulted federal student loans at a much higher rate, which can leave some retirees with income below the poverty threshold.”[4]

While many have argued that the solution is increasing the dollar amount of loans to students, this has actually been counterproductive.  Many colleges and universities have seen high demand and increased loans as a reason to increase their tuition and spending.  Over the last 25 years, American colleges and universities added more than 517,000 administrators and other non-teaching employees, more than doubling the previous total.[5]  During that same time student enrollment is up only 48%.[6]

As I have previously proposed, I believe that schools that benefit from government aid should be required to limit their cost increases to the inflation rate. Had we done this sooner, we wouldn't have the higher education affordability and student loan crisis that we have today.

Institutions that want to continue to raise their costs unfettered can do so -- just without our taxpayer money. Holding colleges and universities accountable for affordability should go hand in hand with the dollars we spend supporting their industry.

2.     Reduce the Markup on Federal Student Loans

The student loan program has seen major changes over the last few years.  In 2010 the student loan program was moved away from private lenders to the federal government, creating an estimated savings of $61 billion.[7]  In 2013 a bipartisan bill changed the way rates for borrowers were calculated, tying it to the 10 year Treasury note plus 2.05%.[8]  This means that students will pay 4.66% for loans next year[9], despite the fact that the 10 year Treasury is trading at 2.2%.

We should take some of that savings and reduce rates for borrowers.  In the Senate, I will introduce legislation to cut the markup in half, to 1%, reducing borrowing costs by more than 20%.   Lowering the interest rates on student loan debt should reduce default rates, accelerate the time frame for graduates to become full contributors to our economy, and help rectify the policy failure outlined above that we have allowed to persist for far to long.

3.     Increased Transparency and Disclosure  (CARD Act for Student Loans)

Markets cannot work effectively unless both sides understand the transaction.  Too often the real costs of private student loans are hidden from the borrower.  The CARD Act required credit card companies to simply explain on a bill how long paying debt off will take and how much interest one will end up paying over that time, and the results have been impressive.[10]  We should require the same for student loans, and start this process before any loans are actually made.  This change would help students understand on the front end exactly what they are signing up for and potentially force colleges to lower their prices to attract students.  At a minimum it would ensure students are aware of just how much debt they are taking on.

4.     Enhanced Online Tools for Understanding The Real Cost of College Loans

Progress has been made in recent years as the Department of Education launched on online college cost calculator (http://collegecost.ed.gov/catc/) but this portal needs serious work.  As the National Association of Student Financial Aid Administrators notes, “the figures may not be useful for transfer students, part-time students, or those who are not eligible for grant aid.”  The portal should be expanded to help walk students with these more complex scenarios through the process.

5.     Reform Government Collection Practices and Private Loan Transfers

Public Collection

Discharging student loan debt is rightly a difficult practice.  At the same time it shouldn’t be impossible.

Educational Credit Management Corporation is a company given the exclusive agreement to pursue those who try to seek relief from federal student loans in court.  While this is obviously a necessary function, recent press stories have exposed a group that the New York Times cited in its report that “pursuit of student borrowers has veered more than occasionally into dubious terrain”[11]  The company has even gone after people who had already fully paid off their loans.  We must reform this program and bring common sense to the practice.  In addition, the law needs to be changed so that payment plans that modify principal do not have a tax impact on the loan recipient.

Private Loan Transfers

Too often loans are bought and sold by private lenders, leaving the person paying the bill confused as to where payments must be made.  We should require clear notice in the mail and electronically at least 60 days before a change is to occur and a mandatory grace period during such transfers.

 6.     Protect Troops from Predatory Loans

The GI Bill helped millions of veterans afford college, and the Post-9/11 GI Bill has extended that help to veterans of our more recent wars.[12]  These programs have been overwhelmingly successful, but now many institutions see these service members as a way to cash in.  Some institutions lock students in to massive debt with promises of guaranteed jobs and then actively work to force students out.[13]  The problem is so pervasive that the Iraq and Afghanistan Veterans of America foundation has created a program to help veterans escape this crippling debt.[14]  As this issue has received attention, some progress has been made, and the most abusive practices have been reduced.  There is still more work to do.

We must increase the resources used to investigate institutions that are taking advantage of our troops, increase loan forgiveness for our troops, and consider rules that hold these institutions receiving taxpayer dollars accountable for their graduation rates.


[7] CQ House Action Reporters, 111-26

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