|Secretary of Education Arne Duncan|
After Arne, the deluge
Without a doubt, the federal student loan program is DOE's biggest challenge. As everyone knows, the program has about $1 trillion in outstanding student loans and about 6 million people are either behind on their loan payments or in programs designed to help people who can't make their regular payments.
What has DOE done about the federal student loan program under Secretary Duncan's watch?
First, DOE has increased the measurement period for computing default rates from two years after the loan repayment period begins to three years. This is a good thing, because it moves us closer to determining what the real default rate is.
But research shows that most student-loan debtors default after three years,and we know that some For-Profits have encouraged their former students to apply for economic hardship deferments to keep those students from showing up as defaulters. We still don't know what the default rate is over the life of students' repayment period, but it is much higher than DOE reports. The default rate for students attending for-profit schools is quite high--maybe 50percent.
Second, the Obama administration has eased the repayment terms for borrowers who elect to enter the Income-Based Repayment Program, which is also a good thing. But we are not solving the student-loan crisis by putting borrowers in 20 year repayment plans. In fact, we may be creating a new class of indentured servants, people who pay a percentage of their income to the federal loan program for the majority of their working lives.
I realize the federal student loan program has enormous economic and political dimensions, with many powerful players wedded to the status quo. I would not expect Arne Duncan to solve all the problems associated with the program without broad political support.
Nevertheless, these are the things that President Obama and Secretary Duncan could have done and should have done, whether or not there was Congressional support.
Number One: DOE needs to report an accurate student-loan default rate, which it has not done. Instead, the public has had to rely on outside agencies to provide some clues as to what is going on. The Federal Reserve Bank of New York's recent report is enormously informative, but the Reserve Bank relied on a credit agency, not DOE, to get data to assess the student loan program.
Number Two: The Obama administration and DOE could stop the garnishment of elderly student-loan debtors' Social Security checks. Social Security income is exempt from garnishment for a wide variety of debt, but not student loans. This year, the government garnished Social Security checks of 119,000 elderly people (Lewin, 2012). This practice is a scandal and undermines President Obama's image as a person who truly cares about Americans suffering economic hardship.
Number Three: I know I am repeating myself, but we must provide reasonable avenues for people to discharge their student loans in bankruptcy. Presently, a significant percentage of people make bad choices when borrowing money to attend college. Instead of enhancing their economic future, they have sealed their economic fate--basically casting themselves out of the middle class because they are saddled by unmanageable student-loan debt. For these people, the student-loan mess is not just an economic crisis, it is a crisis of human suffering.
In years to come, when Arne Duncan's tenure as DOE Secretary is assessed, historians will say he did an admirable job of managing the student-loan crisis, which grows bigger every day. But we don't need a problem manager to head DOE right now, we need a problem solver. Arne Duncan has not been a problem solver, and for someone of Thomas Friedman's status to suggest that Duncan should run the State Department is difficult for me to understand. (Fortunately, Duncan said no to Friedman's suggestion (Fabian, 2012).
Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, and Wilbert van der Klaauw. (2012). Grading Student Loans. Federal Reserve Bank of New York. http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html
Fabian, Jordan (November 28, 2012). Education Secretary Says No to Secretary of State. ABC News. http://abcnews.go.com/ABC_Univision/Politics/education-secretary-arne-duncan-secretary-state/story?id=17826816#.ULd-4Ky5Plg
Thomas L. Friedman (November 27, 2012). My Secretary of State, New York Times.
Tamar Lewin (November 12, 2012). Child's Education, but Parents' Crushing Loans. New York Times.