Editorial: Student loan ‘takeover’ should help college access

Before examining whether federal changes in student loans are a good idea, let’s survey the higher education landscape.

Universities are raising tuition at a rapid rate, which threatens to put a college degree out of reach for many people from middle- and lower-income families. Students at Washington state’s four-year universities can expect to see increases of up to 14 percent in each of the next two years. Those at community and technical colleges will see 7 percent bumps.

Wednesday was the last day to enroll in the state’s Guaranteed Education Tuition at the $101-per-unit rate. Last March it was $76. By prepaying, families can lock in today’s rates for future use. During fall enrollment, the per-unit price will be $114. That works out to more than $11,000 a year. Multiply by four and get ready for some tears.

But that’s still better than many tax-exempt college savings plans, which plummeted in value when the stock market tanked in 2008. And it’s certainly better than the challenge facing future students who won’t be getting family help and must pay their own way.

It’s no wonder that two-thirds of students leave college with debt and continue to struggle as they try to pay it off. So moves to increase financial aid and ease the sting of loans are important in keeping the dream of college alive.

On Tuesday President Obama signed a bill that makes all taxpayer-backed loans a direct transaction between the government and the students. Banks that handled some of the loans as intermediaries will be cut out of the process. A Congressional Budget Office study of direct loans vs. bank loans shows that once fees are eliminated the former is cheaper. The government stands to save about $60 billion over 10 years.

With the savings, the government plans to provide 820,000 more Pell Grants to students of low-income families over the next decade. The maximum amount of the grants will also be increased.

As for loans, students will get more favorable payback options. Starting in 2014, annual repayment will be capped at 10 percent of income, rather than 15 percent.

Loans can be forgiven after 20 years of repayment, or 10 years if students choose public service careers, such as the military, education and nursing.

Banking lobbyists and supporters are complaining about this “government takeover,” but it was never a private sector program.

Taxpayers were on the hook for 97 percent of outstanding loans if students reneged, and failure rates have been climbing.

Even with this change, banks can still issue loans, but the risks will remain with them. Yes, some banking jobs will be lost, but people will still be needed to process direct loans as that program expands.

Besides, this was never supposed to be a jobs program. The idea was to expand access to higher education. With these changes, that should improve.