State Senator Proposes Zero Percent Student Loans
Much of the attention this summer on student loans focused on whether Congress would prevent a doubling of the 3.4 percent federal loan rate.
That rate officially did hit 6.8 percent when lawmakers missed the July 1 deadline. But after much debate President Obama last Friday signed compromise legislation.
This fall, students will be borrowing at a rate of 3.9 percent, but the legislation ties the rates to financial markets. So, if the economy improves, the rate for the government to borrow money will go up and that will be passed onto students.
But a Pennsylvania state senator wants students in the commonwealth who attend state-owned or state-related universities to pay zero percent interest.
Sen. Daylin Leach’s (D-Montgomery) legislation would create a public fund from which students could draw funds to attend college with no money down. Leach said the amount borrowed would depend on the student’s need.
“This money would then be paid back as a garnishment on their wages about 4 percent after they graduate.”
Leach added this would eliminate the problem of defaulted loans, and he said students should not be indebted to lenders forever.
“People would come out of school with an opportunity to get a life started, get good credit without a crushing student debt burden and every loan would get repaid," Leach said. "This solves almost every problem you can imagine with the student loan system.”
But there could be a problem in building the original loan pool that Leach estimates would need about $50 million. He wants to impose a severance tax on Marcellus Shale gas drillers.
The industry has successfully lobbied against enactment of a severance tax since the first well was drilled. The Marcellus Shale Coalition declined an interview request to react to Leach’s proposal, but spokesman Steve Forde did e-mail a statement saying the industry is creating “enormous economic” benefits for Pennsylvanians.
“It’s also giving Pennsylvania students new motivation to remain in the state after graduation: good, high-wage jobs in a variety of fields.”
The statement went on to say that the impact fee, a set amount assessed on each well drilled, has generated $406 million in the first two years.
“We’re very proud of these positive and collective contributions, and look forward to working with policymakers to foster greater collaboration between all stakeholders on behalf of students and working families alike,” the statement said.
Leach said the loan pool would eventually get replenished as students start repaying their loans, and the severance tax could then be eliminated.
“We don’t have to do everything the natural gas industry tells us to do,” Leach said. “We are not wholly owned subsidiaries of the natural gas industry. We can like other states do and say, ‘You know what, if you’re going to take stuff out of our ground you got to contribute to the state a little bit.'”
According to the Institute for College Access and Success, 70 percent of Pennsylvania college graduates leave school with debt and the average amount is $30,000. Nationally, two-thirds of graduates accrue debt averaging $26,000.