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Time for Congress to Smarten Up and Reduce Student Loan Debt

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How many shoes have to drop in the student loan crisis before Congress will finally do something to stem the flood of student debt and crack down on bad corporate actors who are profiteering off the student debt bubble?

We already knew student debt was a crushing burden -- $1.2 trillion worth of crushingness -- on 40 million Americans.

We already knew this debt was harming the economy by undercutting young graduates' ability to buy homes and cars, hampering consumer demand in two key sectors of the economy.

And it we didn't already know that student debt servicing and collections was a burgeoning industry rife with shady business practices -- well, we found that out a few weeks ago when student debt servicer SLM Corporation (aka "Sallie Mae") was discovered engaging in illegal activities. Of all things: overcharging military service members on their loans and intentionally mishandling payments so the corporation can rake in more late fees and penalties.

That seems like it should be enough dropped shoes to kick Congress into action.

There is growing evidence that student loan debt is contributing to our stalled economy. Young people, most likely to buy their first homes, cars, and start a family, are putting their futures on hold while they struggle to pay deep debt and stay afloat. Many have moved back home with mom and dad.

President Obama is spending the week focusing on steps he is taking to offer relief to Americans who are working hard to pay back their student loans.

Now its time for Congress do something about this $1.2 trillion problem crushing our future.

For starters, it can give borrowers with outstanding student loan debt the same opportunity mortgage borrowers, credit card debt holders, and others have: the opportunity to refinance their outstanding debts at current lower interest rates.

While refinancing is taken for granted in other debt markets, people with outstanding student loan debt have been locked into their old higher rates -- 7 percent and up -- even as the going rate on new federal loans has been cut to 3.86 percent.

Fixing this should be a no-brainer. And there's a bill to do it, the "Bank on Students Emergency Loan Refinancing Act," sponsored by Sen. Elizabeth Warren (D-MA), awaiting action in the U.S. Senate now. Senate Democrats have indicated they'll bring it up for a vote on June 11.

Senate Republicans are dismissing this bill as a "message bill" -- one that has no chance of passing. But, it's only a message bill if Republicans treat it as a message bill -- and filibuster it. If they give it an up or down vote, it will surely pass the Senate.

As for the House of Representatives ... well, it's hard to get anything passed through the House of Representatives these days, hijacked as it is by some extreme factions in the Republican majority. Which is why it's a good thing states have been starting to take action on their own on the student loan issue, tired of waiting for action from the divided Congress.

The State of Oregon passed legislation last year to pilot a "Pay It Forward" system that has the potential to tackle the student debt crisis by turning college financing upside down. Instead of requiring students to take out loans to go to college, Pay It Forward sets up a dedicated fund that allows students to go to school tuition-free.

In Wisconsin, lawmakers have proposed a bill that would allow more than 750,000 state residents to refinance outstanding student loans at lower rates through a new Wisconsin Student Loan Refinancing Authority. The Washington state legislature is considering a tuition freeze bill that would also strengthen the state's public investments in higher education, reversing the cost-shift onto students and families. And New York is exploring options to expand grant-based aid at the state level to help students afford college without taking on more debt.

Can we think even bigger?

How big? Big enough to put free college back on the national agenda. Does "free college" sound impossible?

Fifty years ago in California, tuition-free college wasn't imaginary, it was policy. In 1964, a world-class education in the public University of California system came with free tuition and student fees totaling just $220 for the year.

At the 1964 minimum wage of $1.25 an hour, you could earn $220 in four and a half weeks of full-time work. That means a UC student in 1964 could earn enough to pay for a year's college costs by flipping burgers for a month in the summer.

That's clearly not the case anymore -- it takes seven months of full time work at minimum wage to cover a year of tuition at a typical public university.

Let's be smart and make college affordable. We need to reverse these trends of public disinvestment, and private profiteering off student debt. These students are our future, not cash cows for corporate banks.