The Debtor Generation

Washington's attempts to alleviate student debt are in limbo. Now what?

WASHINGTON, DC - JUNE 05: U.S. Sen. Elizabeth Warren (D-MA) (2nd L) speaks as Senate Majority Whip Sen. Richard Durbin (D-IL) (L), Sen. Patty Murray (D-WA) (3rd L) and Sen. Charles Schumer (D-NY) (R) listen during a news conference June 5, 2014 on Capitol Hill in Washington, DC. Senate Democrats held the news conference to discussion college affordability.   (Getty Images)

Senate Democrats this week failed to garner the 60 votes needed to advance Sen. Elizabeth Warren's legislation to allow all student borrowers to refinance their loans at 3.86 percent, the current federal loan rate.

That's not great news for Samual Garner, who owes $200,000 in student loans and can't go on for his Ph.D. because he can't afford more debt. Yet, as an AIDS researcher with the Henry Jackson Foundation at the National Institutes of Health, "there isn't really any room for me to advance without a Ph.D.," Garner says. He's stuck.

So is Kerry Ward, who owes $55,000 and says, "It's just sitting with me, indefinitely." To make ends meet, he has moved back to his hometown of Barberton, Ohio, to run a family friend's ophthalmology equipment business, rather than pursuing a career in journalism as he'd planned. Ward lived with his mom for more than a year to save money.

Both Garner and Ward say they would have made different decisions if they had understood how much debt they would be facing. Garner says he would have worked part-time at the University of Pennsylvania as he pursued his master's degree in bioethics, a choice that would have extended the time it took him to earn the degree but would have allowed him to take classes for free. Ward says he would have attended an in-state school instead of an out-of-state private school, Bradley University in Peoria, Ill.

These kinds of conversations and second-guessing are common among millennials, who are coping with historic increases in college costs. Tuition at public four-year universities has risen by more than 700 percent since 1980. On average, a full-time student paid about $18,000 in tuition and fees for the 2013-14 school year, according to the College Board. In 1980-81, the average yearly total for tuition, room, and board was less than $2,500, according to the Education Department.

The costs add up. Recent graduates talk of delaying families, not buying homes, and not starting new businesses because they lack the capital — decisions that almost certainly will negatively impact the U.S. economy. We just don't know yet how severe the effect will be.

And yet, the policy solutions for helping these graduates only nibble around the edges of the problem. This week, President Obama expanded a 2011 program that allows students to cap their student-loan repayments at 10 percent of their earnings, which can lower monthly payments for borrowers on limited incomes. The expansion made an additional 5 million borrowers eligible. To date, however, the program has been underused because the earnings reports are complicated and its eligibility requirements are confusing. In addition, it applies only to federal student loans, so it won't help the 20 percent of borrowers, like Ward and Garner, who borrowed from private lenders.

In addition, many current borrowers, particularly those with private loans, have significantly higher rates that they aren't able to refinance under a quirk of the law — a problem that Warren's measure is intended to address. Some federal student loans were taken out at 6.8 percent. Garner says he pays more than 7 percent in interest for some of his private loans. (He has several.) Ward pays 7.25 percent.

Republicans objected to Warren's bill because it included the highly partisan Buffett Rule imposing a 30 percent tax rate on millionaires, a measure GOP lawmakers oppose on principle. Democratic leaders said they were open to other suggestions to pay for the refinancing costs under Warren's bill, but there was no evidence of serious discussion about a less controversial pay-for in the weeks leading up to the Senate vote.

The political hype over Warren's bill — she has proven a charismatic and aggressive critic of big banks — is outsized compared with what the legislation's actual impact would be. A borrower with a $30,000 principal balance would save $38 a month after refinancing, or about $4,000 in interest over nine years, according to the Congressional Research Service. That's not nothing, but it's not life-changing, either.

For Garner, the ability to refinance would mean that he could remove his 92-year-old grandmother as a cosigner on one of his loans. Ward says he would feel more comfortable talking with his girlfriend about marriage and a family if he could take a little bit off his monthly payment. She has debt, too, and those balances are a consideration in their future. But he added that his current financial situation wouldn't stop him from getting married. A lower interest rate would just make his life less stressful.

Ward was flying blind when he made his college-financing choices. He was raised by a single mother who brought in meager wages as a fast-food worker and a bank teller. He was the first in his family to go to college. It wasn't obvious how much he would owe when he was considering loans after he got in to Bradley. "Financially, it was probably beyond my means," he says. "I wish someone would have told me."

Sen. Marco Rubio of Florida is among several Republicans who have said tuition and fees should be more transparent to prospective students, and Obama wholeheartedly agrees. Rubio has introduced legislation with several Democrats to require universities to make the costs of each program of study available to students up-front. Obama has created an online "shopping sheet" and a government-run College Scorecard to allow prospective students to compare prices.

But those efforts are in their fetal stages, and Warren's idea is languishing. Meanwhile, the rising debt levels of 37 million borrowers have become a cautionary tale for the next generation of college hopefuls.