Certain Hopelessness: Romney and Obama’s Student Debt Solutions

The politicization of student loan debt is nothing new, but it’s quickly becoming one of the hot button issues for both Presidential candidates.

In his speech on Bascom Hill, in the heart of the University of Wisconsin-Madison campus, President Obama preached to the student body: “Over the last four years, we’ve helped millions of students pay less for college, because we finally took on a system that was wasting billions of dollars on banks and lenders . . . I refuse to ask students to pay more for college.”

But in a system where the average student graduates with $27,000 in debt, the highest level to date, the wild applause that followed that statement was perhaps a little naive.

The Obama campaign has been clear in its goals to reduce student debt by subsidizing loans through programs such as the Stafford loans and Pell grants. The Romney campaign has no plan for student debt-other than asking your parents.

Republicans in Congress have also evaded the issue. In May, Congress couldn’t reach a conclusion after debating sustaining the 3.4 percent interest rate on the Stafford program for another year or doubling it to 6.8 percent. But as Mark Kantrowitz of The New York Times pointed out, arguing over these numbers is like fighting over nickels and cents. The percentage change represents about a $6 increase per month in payments, negligible in the grand scheme of things.

What’s really troubling is that Congress and the Presidential candidates are ignoring the glaring problems of student debt. Interest rates on student debt are astronomically high when compared to the record lows at which private sector debt stands today. The PLUS loan program for parents of college students has a 7.9 percent interest rate, with a 4 percent fee to boot, creating a profit for the government instead of maximum benefits for the recipient.

Bankruptcy laws have been historically unforgiving of students. In order to qualify for student loan bankruptcy, a student has to provide proof of a “certainty of hopelessness.”

Certain hopelessness is a good way to describe a vast portion of recent graduates. Many college students will take up to twenty-five years to pay off their student loans, which will be forgiven, says Obama, if one simply becomes a nurse, teacher, or serves in the military. But for those seeking a career outside of those three categories, proof of certain hopelessness may be the best way to get out from the mountain of loans.

The glossy college brochures high school seniors peruse don’t disclose is the real financial situation students are putting themselves into. Research has shown that many students miscalculate their student debt before they enter college and are unable to predict the type of salaries that they will have after graduation. Universities use every trick in the book to conceal student debt, which is why legislators like Senator Al Franken, Democrat of Minnesota, are pushing for a standardized financial form.

Even if students comprehend the financial risk at stake as they enter college, Romney and Obama still miss the point on one big idea: They both fundamentally believe student debt as it currently stands is worth the trouble.

“We’ve always encouraged young people,” said Romney at a campaign speech in April, “Take a shot, go for it, take a risk, get the education.”

“Take the risk,” said Romney, but “borrow money if you have to from your parents.” The fact of the matter is, most parents can’t help their kids with tuition the way they used to. Students now shoulder more of their debt than they have in the past, indicating that families, especially in the middle class have less flexibility in their own savings.

Obama’s speech in Madison stressed the need for some fundamental changes in the way Americans can grow and prosper “from the middle out.” But if either candidate hopes to help the middle class overcome student debt, marginally subsidizing loans and telling students to borrow from their parents isn’t going to cut it anymore.