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Student Loan Crisis Can’t Be Fixed Without Write-offs and Writedowns: Robert Kuttner

In what’s become a highly unusual event in Washington, Democrats and Republicans agreed to a compromise and passed a bill to set student loan rates. The rate on subsidized loans, which had doubled recently to 6.8%, will be cut to 3.9% for the coming school year. President Obama is expected to sign the bill before Congress leaves for summer recess at the end of this week.

Related: America's Student Loan Crisis: Generation I.O.U.

The bill sets the rate for subsidized student loans at 2.05 percentage points above the 10-year Treasury rate. The rate for graduate school loans is 3.6 percentage points higher than the 10-year Treasury rate and loans for parents will be 4.6 percentage points higher.

Related: What's Really Wrong with Student Loans (Hint: It's Not the Rates)

The legislation also caps rates on all these college loans at 8.25% for undergraduates, 9.5% for graduate students and 10.5% for parents.

Robert Kuttner, author of Debtors' Prison: The Politics of Austerity Versus Possibility, says student loan debt, which exceeds $1 trillion and tops total credit card debt, is “sandbagging young adults and now middle-aged adults.” He would like to see lower rates on student loans and the ability to write down or write off those loans.

Related: Student Loan Debt is the Biggest Financial Worry of Millennials: Wells Fargo Survey

“I would refinance existing student loans at the Treasury borrowing rate [now around 2.6%] and write it off after about 15 years of on-time payments… There are times when it makes more sense for the good of the country to write off debt rather than to shackle people with debt and student loans are one of those categories. At least write it down if we don’t write it off.”

In the meantime Kuttner is impressed with a college funding program that Oregon’s legislature recently passed. Under the program, students can attend a state college essentially for free but would be required to commit a percentage of future income to repaying the state.

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