The U.S. Treasury, which finances more than 90 percent of new student loans, is exploring ways to make repayment more affordable as defaults by almost 7 million Americans and other strapped borrowers restrain economic growth.
Leading the effort is Deputy Secretary Sarah Bloom Raskin, who became the department’s No. 2 official in March after more than three years as a Federal Reserve governor. As higher- education debt swells to a record $1.2 trillion, Raskin, 53, is alert to parallels to the mortgage crisis.
Back then, “we would see signs on telephones polls with 1-800 numbers urging homeowners to call to stop foreclosures. People generally got into more trouble when they used those services,” she said in an interview. Driving past the same telephone poles recently, she saw signs “urging people to call a 1-800 number for helping paying student loans.”
Raskin has reason to worry: Most of those loans are backed by the federal government. In addition to trying to facilitate stronger growth, she’s focusing on the impact such debt has on government’s financing needs and ways to improve servicing and collection.
Among the options under consideration is boosting participation in underused Education Department programs that reduce monthly payments by tying them to a percentage of income for those who struggle, while extending the term of the loan.
The Treasury and Education departments are working with tax preparers Intuit Inc. and H&R Block Inc. to reach borrowers during the tax-filing process and provide information about student loan repayment options.
Forecasting Debt
For the Treasury, which finances $100 billion of new student loans every year, a pressing need is forecasting repayments more precisely so it can better determine how much money to raise from capital markets.
“The income-based plans provide borrowers with good options to keep their loans current, and keeping those loans current is very important from the perspective of the U.S. government’s balance sheet,” Raskin, the Treasury’s highest- ranking woman ever, said in the July 16 interview. “We need precision around how much we have to raise in order to meet the demand for student loans.”
Critics such as Richard Vedder, director of the Washington- based Center for College Affordability and Productivity, a nonprofit research group, say the administration’s efforts fail to address the core issue: education costs increasing faster than inflation and income.