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Cantor: It's long past time to make student loans affordable.

Byline: Commentary

With Long Islanders preparing to send their high school graduates to college, it's likely that most will be relying on student loans. They are not alone.

In 2017 nearly 28 million borrowers obtained student loans totaling $1.3 trillion nationally. In the class of 2016, the average student has $37,172 in student loan debt. That debt burden increases for parents who borrow additional funds necessary to subsidize their children's education.

The financing of postsecondary education is big business and generates for lenders profits they don't have to work hard for. Since lenders dominate the supply side of the market equation where demand is as sure as guaranteed as it could be, and with student borrowers expressing how high their loans balances are, why not change the loan repayment structure for student loans to a self-amortized basis. That would be similar to a car loan where monthly payments are designed to liquidate the loan.

It would be an improvement over the current system where student loan repayment and interest and principle calculation is treated like consumer debt, like a credit card, where interest is based monthly on the outstanding debt deducted from a constant payment. The affordability issue arises when monthly interest on student debt is relatively close to the principle payment, resulting in a loan balance that is minimally reduced. This happened to my daughter who had a $15,000 loan and had been making payments for 14 years, and still had $14,692 debt remaining.

There is something wrong with this, especially when parents and students eagerly signing for student loans become ensnared in this student loan trap.

This problem is closer to home than you think. The per capita student debt in New York State of $5,570, second highest in the nation, is 13 percent greater than the national average of $4,920 per capita student debt.

There is a market solution to the student loan bait-and-switch which won't cost taxpayers a dime. Government and lenders should provide self-amortizing student loans, similar to car loans, so borrowers don't carry student debt for years as is the case with those between the ages of 30-39 who have $408 billion in student loans or 31 percent of all current student debt.

Only a market solution is broad enough to impact all student loan borrowers which the New York Federal Reserve estimated at 44.2 million in the 4th quarter of 2016.

With the value society places on education, how we finance it should reflect that value.

Martin R. Cantor is director of the Long Island Center for Socio-Economic Policy and a former Suffolk County economic development commissioner.

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Publication:Long Island Business News
Date:Aug 20, 2018
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