NEW YORK (MainStreet) — In the wake of the Department of Education's (ED) decision to allow limited write-offs of Corinthian College student loans, Sen. Elizabeth Warren (D-Mass.) has new ideas to coordinate the efforts of federal and state governments to increase support for higher education.
Warren disclosed her plan in a speech at an American Federation of Teachers confab in Washington this week. Her theme was "The Affordability Crisis: Rescuing the Dream of College Education for the Working Class and Poor." Her goal is to try and make college a debt-free affair.
Warren called for renewed federal and state investment plus strengthened accountability that would encourage colleges to keep costs down and boost quality. She also attempted to meld Democratic and Republican concerns about how to pay for higher ed.
“Democrats talk about resources, pointing out that we’re no longer investing in our kids the way we once did,” Warren said. “Republicans talk about risk and incentives – arguing that students take on debt without fully understanding the consequences, and that colleges get access to federal dollars pretty much no matter the quality or cost of the education that they provide. Here’s the truth – both sides are right… Our college crisis needs a one-two punch —more resources and better incentives to keep costs low.”
Warren wants colleges to share in the risks from student loans and called on states to refinance student loans. She also said she wants rule changes to the federal loan programs that put students before federal profits. By some estimates, ED takes in about $1.20 for every dollar it lends.
But Warren's plan to shift the burden to state governments may come a cropper if state revenue doesn’t increase. Even if the U.S. economy has been in recovery mode for six years, many state treasuries have been slow to rebound.
Wisconsin Governor Scott Walker, touted as a Republican presidential hopeful, cut $541 million in taxes last year, but the expected surplus was not forthcoming. With the budget shortfall now around $280 million, Walker has proposed closing the gap by decreasing funding to public schools and the state's university system. Students loan refinance? The prospects don't look good for that in the Badger state.
The situation is similar in other states, such as Louisiana, where Republican Governor Bobby Jindal is a presidential wannabe. In Kansas, a coalition of Democrats and Republicans has attributed the $400 million budget gap to Republican Governor Sam Brownback's tax cuts. Budget gridlock is also expected in Illinois, which faces a $3 billion shortfall. Unfunded pension obligations in Pennsylvania and New Jersey would seem to make new higher ed aid a non-starter.
For many states, avoiding employee lay-offs will trump student loan solutions--and lead to late state budgets. According to the National Association of State Budget Officers, only 25 states have passed budgets to date.
Even states like Minnesota that have a surplus have not yet agreed on a budget.
Nevertheless, Warren wants increased state contributions. “This is a critical moment in America, a moment at which we reconsider how to build a future,” Warren said. “We cannot build a 21st Century workforce and a 21st Century economy if colleges keep raising prices, if states keep cutting support, and if the federal government squanders billions.
In terms of a Republican-Democrat détente, Warren may see an opening in the approval some GOP legislators expressed for ED’s Corinthian College student loan deal.
House education committee chair John Kline (R.-Minn.) and Rep. Bobby Scott (D-Va.) are pleased with ED’s decision on the Corinthian loans. In the past, both have been sympathetic toward for-profit colleges.
“A lot of men and women have been hurt by this unfortunate situation, including low-income and minority students,” they said in a statement. “Helping those eligible students who have been harmed is the right thing to do.”
Senate HELP committee chair Lamar Alexander (R-Tenn.) has endorsed, at least in concept, Warren’s demand that colleges chip in when a large slice of their graduates can’t pay back their student loans.