Student loan debt is developing a deep penetrating consciousness this campaign season than in any other in memory and to that, we’d add that it’s about time. Americans’ outstanding loan debt has reached to an exceedingly high level of more than a trillion dollars this May, according to recent statistics provided by the Consumer Financial Protection Bureau. It surpassed total consumer credit card debt a few years ago; being only second to home mortgages in total U.S. consumer debt burden.

Mortgages vs. Student loans

“Student loan is responsible for an $83 million drag on home buying this year”, John Burns, a home builders’ adviser said indicating that over 414,000 homes won’t be sold because 5.9million Americans under 40- triple the number since 2005- spend $250 or more per month on college loan debt service forming a strong connection with mortgages.

Wake up call for the government

The time has come for all Americans especially the politicians to recognize that not only recent college grads are affected by this heavy debt load but the entire economy is feeling the burden when the purchasing power of many aspiring young adults is pinched. There should have been more wide discussions about this consequence by the government in state capitals where monetary policies are designed and higher funding in order to subsidize this sector even more should be the way to go.

State of Minnesota – Taking it seriously

But there are certain states where state and federal office candidates are taking this issue into account. For e.g. Minnesota candidates are talking now about high student loan debt as a problem government needs to eradicate. A Democratic U.S. Sen. Al Franken is promoting a good bill that he co-sponsored this year to reduce the interest rate on federally guaranteed student loans to 3.86 percent from the current 4.6 percent, and to allow existing loans to be refinanced at that lower rate. His republican opponent, Mike McFadden, had this view to support the bill if weren’t financed with a tax increase. He held sharply rising tuition as the chief student debt culprit implying that colleges and universities can do more to clamp down higher costs.

The numbers game

That’s undoubtedly true. But few enterprises could cope with funding cuts the Legislature dealt the University of Minnesota and Minnesota State Colleges and Universities (MnSCU) during the past two recessions without raising prices. A MnSCU analysis showed that state support per full-year-equivalent student dropped from an inflation-adjusted $4,766 per year in 2002 to $2,787 in 2012. It’s projected to be up to $3,247 in 2015 — still lagging the 2002 level by one-third. MnSCU also reports that among students at two-year colleges, average annual student borrowing is up nearly twice as much as tuition rose between 2006 and 2013. That suggests that there’s more to rising student debt than tuition increases alone. It’s notable, too, that the 2013 Legislature imposed a two-year tuition freeze on MnSCU and negotiated one with the autonomous University of Minnesota. The two public systems have offered to extend that freeze through 2017 for a price, and state House DFL leaders indicated that they also want to extend the freeze. But they stopped short of promising to meet the systems’ proposed price. That hesitation is justified. Freezing tuition may help constrain debt, though — as we argued last week — increasing aid for needy students might be a better way to maximize college access.

Policies that could help

There is an intriguing policy idea floating among the major stake holders which is partial loan forgiveness for some college grads. The idea touted by several federal high officials and would write down debt amounts of up to $3000 per year for grads in two categories - those who take jobs in “vital fields” and those who spend a year in community service.

This idea mimics an earlier started program in the state of Kansas that has slowed that state’s rural brain drain. It could also help ease a growing shortage of high-tech workers in different parts of the country. Many of the proposal’s key features are yet to be decided, including which industries, in which places, and which indebted grads would qualify. It is highly anticipated that about $10 million per year for the effort would be required. That’s a small sum even in a state’s budget that on the average includes $1.4 billion per year for higher education, and in a state in which on average 0.6million people are paying off college loans.

Ideas like these should be encouraged but one has to think bigger and more flesh on conceptual bones should be added. This nation has a long history of rewarding young people who serve their country by providing a discount on college costs. That simply was the genius of the modern 1944 GI Bill, which did much to build the modern U.S. economy. This bill indicates a reverse process i.e. a government reward for service after graduation, not before. But this kind of reward is still a potent policy tool and could be well implemented.