Student debt is crushing families. Two practical fixes

America’s student loan crisis is no longer just a problem for recent college graduates. It has become an economic issue affecting families, employers and communities across the country.

Today, Americans owe approximately $1.8 trillion in student loan debt. The federal government alone holds nearly $1.7 trillion in outstanding loans owed by 42.8 million borrowers. The average federal borrower carries nearly $40,000 in debt, making student loans the second-largest category of consumer debt in the United States behind only mortgages. 

The numbers are more concerning when examining repayment trends. According to the U.S. Department of Education, fewer than 40% of federal borrowers are currently in repayment, while nearly one-quarter are in default. More than 7.7 million borrowers are already in default and another four million are approaching it. 

For many Americans, student loan payments compete with mortgage payments, retirement savings, childcare expenses and the everyday costs of raising a family. Research has consistently shown significant student debt can delay homeownership, entrepreneurship and long-term wealth creation.

Washington’s debate regarding student loans often centers on two extremes: complete loan forgiveness or no reform at all.

However, there are practical solutions.

That is why legislation recently introduced by Congressman Mike Turner deserves serious consideration. His bipartisan proposal would allow federal student loan borrowers to refinance their loans when interest rates fall while remaining within the federal system and maintaining important borrower protections.

The concept is simple. Americans refinance mortgages. We refinance automobile loans. Businesses refinance debt every day. Federal student loan borrowers should have access to similar opportunities when market conditions improve.

Such a reform would not eliminate debt. It would not transfer obligations to taxpayers. Borrowers would still repay what they borrowed. The student loan refinancing could lower monthly payments and reduce the total cost of repayment for millions of Americans.

Congress should also consider a second reform rewarding responsible repayment rather than simply debating forgiveness.

One option would be to allow student loan payments to receive tax treatment similar to contributions to a 401(k) retirement account. Borrowers could deduct a portion of their annual student loan payments from their taxable income, subject to a reasonable annual cap established by Congress.

This proposal would help middle-class families without shifting debt to taxpayers. More importantly, it would reward individuals actively paying down their obligations rather than creating incentives to postpone repayment in anticipation of future forgiveness programs.

The current tax code encourages Americans to invest in retirement because policymakers understand the long-term economic benefits of financial stability. Paying down educational debt should be viewed similarly. Both represent investments in a person’s future earning potential and financial security.

Federal student loan interest rates remain elevated compared with recent years, and many borrowers continue adjusting to the return of regular repayment obligations. At the same time, Congress is debating new borrowing limits and repayment structures designed to address the long-term sustainability of the federal student loan system. 

These reforms on the student debt issue does nothing to address the root cause of the problem.

For decades, colleges and universities increased tuition at rates that far exceeded inflation while the federal government expanded lending programs. Easy access to loans often enabled schools to raise prices with little accountability. Students were encouraged to borrow more, institutions collected higher tuition and taxpayers assumed greater risk.

Meaningful reform should focus on transparency, affordability and accountability. Colleges should have a greater stake in student outcomes. Prospective students should have clearer information about expected earnings and debt levels before signing loan agreements. Borrowers should have access to practical tools making repayment more manageable.

The student loan crisis was not created overnight, and it will not be solved overnight. There is not a single policy that will erase nearly $2 trillion in debt or reverse decades of tuition inflation.

Allowing responsible borrowers to refinance federal student loans without sacrificing federal protections is a step in the right direction. Creating a capped tax deduction for student loan repayment would be another. Both ideas reward personal responsibility, help working Americans and preserve fairness for taxpayers.

The U.S. needs solutions recognizing economic reality, encouraging responsible behavior and restoring the promise that higher education should create opportunity.

Not a lifetime of debt.

Rob Scott is the Kettering Clerk of Court, an attorney and a small-business owner. Contact him at rob@robscott.us.

This column first published on DaytonDailyNews.com. Read the full article here.