“Student Debt Viewpoints” is an occasional series looking at the student debt crisis — its causes and possible solutions — by speaking with different stakeholders in the issue, including government officials, students, school administrators, activists, and others. The views expressed are those of the articles’ subjects and are not necessarily those of Student Loan Hero or its parent LendingTree.
We hear a lot about the student loan debt crisis these days. And it’s a real threat: Outstanding student loan debt has surpassed $1.5 trillion — almost 50% more than total U.S. credit card debt — and the cost of college keeps rising.
Some lawmakers like Tom Reed, a Republican representing New York’s 23rd District in the House of Representatives, are interested in tackling the causes of the skyrocketing cost of college.
Reed has introduced legislation aimed at the problem, and he routinely advocates for different measures designed to make college more affordable for students.
“This is an area that affects the futures of so many young men and women, and it’s time to address the issue before it gets even worse,” said Reed. “We’re shackling our children and grandchildren to debt if we don’t do something.”
Meet Tom Reed
The youngest of 12 children, Reed was born into a busy household, headed by his father, decorated war veteran Tom Sr., and his mother Betty. But after the death of his father when he was 2 years old, Reed was on the hook for paying for his own schooling.
Reed learned, firsthand, the pain of student debt. His own student loans, after finishing law school at Ohio Northern University, amounted to about $110,000.
“The plight of students wanting to make a living is near and dear to my heart,” said Reed, who has two children of his own now in college. “I understand what it’s like to struggle with this debt.”
Reed served as the mayor of Corning, New York, from 2008-2009 and was elected to the House of Representatives during a 2010 special election in his mostly rural district running along the border with Pennsylvania.
Tom Reed on the Student Debt Crisis
“When you talk about the student debt crisis, you have to talk about the reasons college is so expensive today,” said Reed. “There’s no cost containment, and there’s a great deal of price inflation.”
Part of the problem comes from the fact that it’s so easy to get student loans to cover the costs of college. Because schools know that students will get funding from somewhere, Reed said, it leads to complacency about rising costs — and there’s no reason to rein in expenses.
On top of that, Reed also believes that there’s an element of unnecessary price inflation to give parents the illusion that the school is of a higher quality — and to give them something to brag about around the watercooler when their children get scholarships.
“We’re talking price inflation at the used-car salesman level,” said Reed. “People feel like they’re buying a Mercedes because of the cost. They look at it, and they don’t know how they’ll pay, but then the school offers a scholarship.”
Reed added that many of these scholarships don’t cover the full cost of college, so students have to turn to student loans to cover the rest. “But the psychological effect of having received a scholarship is powerful,” he said. “And you can’t discount the fact that we so often equate large expense with value, so people think they’re getting a good deal on a good education.”
Not only do schools inflate costs, according to Reed, but the idea that everyone has to attend a four-year school also contributes to the problem.
“You think you have to get a so-called traditional four-year degree, so you don’t consider other options,” he said. “However, many students could save money by starting at community college, and we’ve got a shortage of people skilled in the trades.”
Today, said Reed, a four-year degree isn’t a guarantee of a good-paying job. “Many grads find themselves drowning in debt they can’t afford, just because they were steered toward a four-year degree,” he said. “That debt delays their ability to meet other life milestones, like buying a house and starting a family. Those delays make ripples through our economy and our society.”
Proposals and solutions
Tom Reed believes it will take multiple strategies to fix the student debt crisis, and some of those ideas have bipartisan support.
Among the proposals Reed backs is making federal student loans eligible for public refinancing at lower rates, without losing access to federal programs like income-driven repayment and Public Service Loan Forgiveness. (Today, the only way to refinance federal loans is privately — resulting in borrowers getting locked out of those useful options.) He also likes the idea of work-off programs: “Expand programs that offer some level of loan forgiveness to graduates who work in underserved areas.”
However, one subject Reed is particularly focused on is universities that hoard money in billion-dollar endowments, rather than using these funds to benefit the neediest of students.
In May 2018, Tom Reed introduced the Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act into the House of Representatives. (You can keep up with higher education legislation using our Student Loan Bill Tracker.)
Reed said the main thrust of the legislation is to shed light on high-value endowments, citing 90 institutions with endowments amounting to $1 billion or more in tax-free dollars. Unfortunately, he said, there isn’t a lot of transparency in how that money is used.
“If you look at these endowments, there’s some crazy stuff,” Reed said. “Some people can give a tax-advantaged endowment to a university and put strings on how it’s used, including putting in a box at the football stadium for personal use.”
Reed said there are cases of universities spending $3.6 million a year on a finance manager or allowing a college president to spend $800,000 on sports season tickets, money that he believes should instead go toward lowering the cost of attendance for working-class families.
“Under the REDUCE Act, universities with the greatest wealth would be required to distribute 25% of their endowment profits to assist low- and middle-income students,” said Reed. “And the endowments would be required to clearly and transparently disclose exactly where they are spending money.”
Changes to tax deductions would also be made as a way to benefit schools that help students, while punishing endowments that don’t.
Other provisions of the REDUCE Act include:
- Requiring colleges to have a plan for limiting tuition increases to below the rate of inflation
- Encouraging university donors to focus more on low- and middle-income student assistance, rather than making restricted donations that don’t benefit students
“When these schools are required to evaluate their costs, and when the public can see where the money is really going, that should put pressure on universities to put more toward making college costs manageable for students,” said Reed.
How to make college affordable
“In the end, universities are doing a lot of things that inflate the cost of college without providing much value to students,” said Reed.
“There’s an amenity mindset with universities. They think they need all these bells and whistles, but when you talk to students, those amenities aren’t deciding factors,” he said.
While Reed believes that institutions can do a lot more to make costs affordable to students, he also places some of the responsibility on parents.
“It’s hard to tell your child that they can’t go to their expensive dream school,” he said. “But I did it with my own daughter when I told her she couldn’t go to Syracuse University because of its high cost.”
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
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2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|