Student loan debt in the U.S. has grown to more than $1 trillion, surpassing credit card debt. Meanwhile, enrollment is surging in popular federal loan programs designed to eventually forgive some student debt. Now, government officials are considering how to rein in costs — and investigate the impact Americans' student debt burden is having on our economy.
The student debt dilemma is a major concern of Sarah Bloom Raskin, the new deputy U.S. Treasury secretary. The former Federal Reserve governor sat down with CNBC at the University of Maryland-Baltimore County, where nearly half of the students received some kind of financial aid this school year.
In an exclusive CNBC interview, the first in her new role, Raskin explained why addressing student loan debt is at the top of her agenda.
Sharon Epperson: Why has this become such a big issue for the Treasury to address the student loan debt crisis?
Sarah Bloom Raskin: The student loan debt issues have a lot of connections to the economy and anything that is of interest to the economy is of interest to the Treasury Department. So, we want to take a very careful look at the amount of student debt that's accumulating and try to understand with some granularity and specificity what it's due to and whether or not it's dangerous.
Epperson: Are you already seeing dangerous consequences of student loan debt for short-term purchases toward the economy?
Bloom Raskin: The first thing to think about when you think about student debt is that it is really an investment, an investment in people's potential. And we want people to go to college, to go get and complete a four-year education because it does amazing things to the economy. It has, of course, important benefits outside of the economy but in terms of economic growth and the ability to tap into people's potential, it's a fantastic investment. It's an investment with huge returns and, for that reason, it's really important that people have that opportunity to go to school.
Epperson: But it is an investment that years ago a lot of families struggled and scraped by to save to afford to go to college, and now with the many federal student loan programs, has become much more affordable for many. But it has at the same time caused many families not to really think about how they're financing the education and what the long-term consequences could be?
Bloom Raskin: It's really important that you say that because the cost of college has gone way up. We're seeing dramatic increases really across the board and it's becoming very difficult for many families to be able to afford it. At the same time, we understand how important it is and how critical it is for people, particularly of low or moderate incomes, to use education as a way to be able to get more opportunity, to climb the ladders — a very important feature of our society. We want to make sure that it's being done and being understood correctly.
Epperson: We are seeing tuition continuing to rise. In the last 20 years, we've seen almost a 50 percent increase. We're also seeing new borrowers, almost 90 percent of the loans that they're taking out are coming from the federal government. So, I'm wondering that if by making it more affordable and creating these loan programs, is this taking away the pressure on colleges and universities to keep their costs down?
Bloom Raskin: We want to look at that because I think you raise a point that is something that we want to make sure we understand and understand correctly. The point, though, in terms of student loans, is that we want to understand them as being a facilitator, a tool for people to use, and in essence contribute to the economy. People who have graduated from college have much more potential in terms of income than others who have not been able to complete a four-year college education. So, we want to make sure that that is something that is a possibility for people, a viable possibility, and that when people take advantage of it they're given the flexibility in terms of repayment, in terms of interests rates, and being able to afford it.
There is an important point, too, that you've alluded to, that has to do with college affordability. This isn't really a single point of contact that is going to be important for solving this problem because the cost of tuition is very high as well. We have to think through what the administration can continue to do to make that education more affordable.
Epperson: One of the things that has also come up in the research from the Congressional Budget Office is the amount of money that has been made on student loans — $41 billion last year. The profitability, they say, is expected to continue until 2024. And that begs the question for many critics as to why the government is making money on these loans when the affordability for many is an issue — there's the potential of default down the road and tremendous debt.
Bloom Raskin: Affordability is important. And I think one thing we want to make sure we do right is that we give students and their families the opportunity to compare so that they can compare different education options and compare schools and compare levels of debt and do standardized comparisons across schools, across colleges so that students are well-informed before they go into a debt situation.
We need to make sure that they have the tools to understand the investment, to understand the ramifications of what these debt levels will mean. And it's a hard decision. Because when you think about when you typically make that decision you don't always know what kind of job you're going to have and how much money you're going to make. And it's a complicated, complicated decision. And there are a lot of options out there for students.
Epperson: But they also need to be ready for what we're seeing with the economy with interest rates likely to go up, that they're going to be paying more likely.
Bloom Raskin: Well what is fantastic about the federal student loans is that the interest rate is the lowest one out there and not only that, but they come with very good protections, with safeguards. And that makes the federal student loan program — there's definitely work to be done on it — but it is a very good product.