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ABCs of IOUs

As national millstones go, student debt is a doozy.

It currently hovers at $1 trillion, outpacing debt on credit cards and car loans. It hinders and delays home ownership, crimps retirement savings, slashes household spending, limits career choices and — in sum and in the words of U.S. Sen. Richard Blumenthal — “is crippling national economic growth.”

In a 2012 survey of college costs, the federal Department of Education determined a four-year college education cost $8,756 in 1980, determined in constant 2009 dollars. By 2011, that figure, also in 2009 dollars, was $32,617. For Connecticut college graduates in 2011 who borrowed for their education — 62 percent did so — the average debt at graduation was $29,380.

Sen. Blumenthal at UConn Stamford in August.
Sen. Blumenthal at UConn Stamford in August.

Those figures have the focused attention of Blumenthal because, as he said in a telephone interview with the Business Journal, “We need to significantly raise the visibility and awareness about the crisis in college affordability and champion measures that relieve this crushing financial burden on recent graduates and students just getting started.”

Blumenthal has this summer toured “more than 10” colleges in Connecticut with a multipronged message about the need for change. Among his more attention-getting numbers is the $51 billion he says the federal government makes each year as steward of student loans at a 3.4 percent interest rate.

“It is unconscionable that the government makes $51 billion this way,” he said. “We need to invest in students, not profit on their backs. We should regard student financial aid as an investment, not as a tool for deficit reduction. I want to reduce the deficit, but not in this way.”

Blumenthal unveiled a new legislative proposal at the end of July to expand and improve the federal “Pay as You Earn” program to address what he calls “the crisis of college affordability.” It never reached an up-down vote in the full Senate. He said his hope is “before the end of the year we will consider this.”

Blumenthal cited the payback schedule for student loans as potentially punitive, since they initiate six months after graduation. “A point I’ve been hearing is that the grace period of six months is too short,” he said. “Some graduates cannot find work in that amount of time. It should be longer; there should be more flexibility.”

Blumenthal’s plan would build on the Department of Education’s existing “Pay as You Earn” program, which allows student borrowers to cap their loan repayments at 10 percent of their discretionary income. Under the current plan, loans are forgiven if after 20 years the full balance has not been repaid. While the plan has many strong components, according to the senior senator from Connecticut, only new borrowers (post-2007) are eligible, “leaving behind millions of students with pre-existing loans.” Blumenthal wants that to change by eliminating the 2007 cutoff.

And, he noted, forgiven balances are considered taxable income. His plan would amend the tax code so that forgiven loans would not be considered as such.

Overall, he said, “The cost of college needs to be driven down.”

The news from some corners of America is of mandatory creationism in science class and slashed education spending. But Blumenthal hears none of it at work.

“There’s no anti-intellectualism,” he said. “Everyone is aware of the value of a college education as the single most important employment factor. We have an unemployment rate of 3.9 percent for college graduates and a rate for the whole work force of 7.5 percent — that’s a wildly different percentage. For many on limited income, college is the key to promotion and employability. ‘Pay as You Earn’ is an invitation to make an investment in themselves while at the same time society makes an investment in them.”

Blumenthal also is promoting and seeking to bolster “public service loan forgiveness” in an effort to attract graduates to the ranks of police, EMS and teachers.

The program has many strong attributes, according to Blumenthal. “But for a lot of graduates in public service jobs, income-based payments may not even cover the full cost of the monthly interest on their student loans. Graduates who cannot continue in a public service or nonprofit career for the full 10 years will not qualify for loan forgiveness and may end up ultimately owing more than when they first entered the program.

“Teachers, police officers, public health workers and others who dedicate their careers to public service do so not for the financial rewards, but for the tremendous positive impact they have on their communities. Such work should be applauded, encouraged and supported — and should not leave graduates drowning in debt to pay for the degrees many of these jobs require.”

Blumenthal offered no figure for diminished federal revenues with such tax relief. “We’re working on it,” he said.

On his college tour, Blumenthal visited four- and two-year institutions. He later stressed the importance of community college programs, perhaps underplayed in the public mindset, but not in the minds of employers with whom he spoke. He seeks the same debt relief at the likes of Housatonic and Norwalk community colleges as at Western Connecticut State University in Danbury or UConn Stamford.

Blumenthal saw his efforts in the college funding arena fail to reach an up-down vote in July. He hopes for another chance before year’s end.

“President Obama has been a leader on this issue,” Blumenthal, a Democrat, said. “His support for these kinds of measures has been critical and I hope for similar allies in Congress.”

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Bill Fallon is editor of the Fairfield County Business Journal. He has worked at Westfair Communications for more than five years, previously editing an upstate New York daily and a national motorcycle magazine in Nevada. He attended Iona Prep in New Rochelle, N.Y., and the University of Virginia.

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