The smart way to lift the student-debt burden

Many Americans are struggling with student debt and need a lifeline – but not from the government, which caused much of the mess in the first place. The answer is a new private-sector plan that would slash the outrageously high federal interest rates.

Students and their parents owe $1.44 trillion, borrowed to finance college and university costs, according to the Federal Reserve. That’s an increase of one-third in just four years. By comparison, Americans owe $1.2 trillion in auto loans and $800 billion in credit-card debt.

What makes the figures all the more troubling is that the vast majority of debt is issued by the federal government itself. The U.S. Department of Education has, in effect, become one of the largest banks in the world. Judging from the results of the last election, I would say that role just doesn’t fit the values of most Americans. 

Most student debt is held in what are called William D. Ford Federal Direct Loans, and, according to the U.S. Government Accountability Office, “Almost 20 percent of Direct Loan borrowers were delinquent on their loan payments at the end of 2015, and more than a million borrowers defaulted on their loans over the 2015 fiscal year.”

One big reason is that students and their families are being crushed by interest rates that far exceed market levels. At a time when most rates are close to all-time lows and a 10-year U.S. Treasury bond is yielding just 2.2 percent, the rates on Direct loans for the upcoming school year issued currently range from 4.45 percent for undergraduates, 6 percent for graduates, and 7 percent for parents, according to the Department of Education.

Read more at the Hill