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Those pesky student loans

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Esther Cepeda
October 30, 2011
— Fundamentally, American society doesn’t value a college education as the necessary prerequisite to gaining knowledge or becoming a responsible citizen. Instead, it is promoted as the guaranteed means to gainful employment.

In fact, the value of a college education is dropping so much that certain graduates who are dissatisfied that their diplomas did not yield the job placements of their choice want to shirk their responsibility to pay back their student loans. I’m referring to the portion of the Occupy Wall Street demonstrators and their supporters who have made “free college education” and “immediate across-the-board debt forgiveness for all” a rallying cry.


They haven’t gotten their way but certainly won an enthusiastic nod from President Obama. He was at the University of Colorado, Denver, on Wednesday sprinkling tasty but unsubstantive campaign trail breadcrumbs. It was similar to his limited mortgage refinancing plan, which will assist very few homeowners but sounds good in stump speeches.


Obama empathetically told the college students that they deserve a break because he, too, thought paying back those pesky student loans was a bummer.


“We want you in school,” the president said, “But we shouldn’t saddle you with debt when you’re starting off.”


I hear you Mr. President. My family has more outstanding student loans than the value of our house. But there’s not a lot in his bundle of breaks that is new or different, or that will have much impact on the millions of borrowers currently in repayment or already defaulting on student loan debt. The College Board estimates that debt will exceed $1 trillion—more than credit card debt—for the first time this year.


The “Pay As You Earn” plan Obama is implementing through executive order is a tweak of an already existing plan that caps monthly student loan payments to 15 percent of a borrower’s discretionary income and forgives the remainder of the debt after 25 years. But not many people have exercised the option. The change, starting in 2012—two years earlier than outlined in a recently passed law—will be available only to new borrowers, offering a 10 percent cap with forgiveness after 20 years.


The administration also announced that certain eligible borrowers will be able to consolidate their disparate loans and reduce their interest rates—an option that’s been available both through private lenders and through Sallie Mae, the country’s largest student loan servicer, for years—by a whopping one-half of a percentage point.


Last, Obama pushed what he called a simple fact sheet titled “Know Before You Owe” so students will “have all the information you need to make your own decisions about how to pay for college.”


This implies that students are in trouble because they don’t understand what they’re getting into when they take out student loans. How can that be?


Back in 1992, when I accepted the first of my many student loans, my signature was required on a separate form that, in very plain English, said, “Yes, I understand that I am responsible for paying back these loans plus their interest in full.” Since 1965, colleges and other student lenders have been required to make borrowers sit through either in-person, video or interactive webinar entrance and exit loan counseling designed to drive home the point that loans must be repaid and can’t be cleared through bankruptcy.


There is little excuse for students not knowing that repayment was expected and even less excuse for default. During those same counseling sessions, students are instructed about the six-month grace period, their right to postpone, reduce or suspend repayment for various economic hardships or military service, or extend their payment plans.


It’s true that tuition is ballooning—though, to be fair, the amount of federal assistance in the form of both loans and grants is keeping pace pretty well—and well-paying jobs are not plentiful. But attempting to ease student-loan burdens is not the answer. There should be a focus on skyrocketing college costs and the responsibility of students to choose more affordable schools or earn degrees in fields that have ample job openings.


Reinforcing the notion that you shouldn’t have to repay money no one forced you to borrow is certainly not the way to lay the foundations for a healthy long-term economy. But then again, preaching the basics of personal responsibility and sound financial planning to students, recent grads and Occupy Wall Street supporters sure wouldn’t go over well on the campaign trail.


Esther Cepeda is a columnist for the Washington Post Writers Group. Her email address is estherjcepeda@washpost.com.

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