Wisconsin’s student loan debt is a $24.4 billion problem, according to a report by the Consumer Financial Protection Bureau.
Looking at 2018 Wisconsin graduates, 64% had debt. Their average debt was $31,705, the 13th highest in the nation, according to a report by The Institute for College Access & Success.
State Treasurer Sarah Godlewski and Rep. Don Vruwink, D-Milton, held a forum on student loan debt Jan. 15 at Culver’s in Newville. The event was hosted by the Milton Area Chamber of Commerce and Forward Janesville.
“When you look at the market, we are seeing some of the lowest interest rates around,” Godlewski said. “People can borrow money for 3%, 4%, 5%, yet students are paying 9%, 10% up to 15% last year. We know that we have to start doing something about this.”
The question for Wisconsin is not only how does student loan debt impact people individually but how does it impact the state’s economy, she said.
“People have talked about not starting families because they’re not sure how they can afford it,” she said. “People are not buying homes, cars, things that really stimulate the economy.”
Prior to being state treasurer, Godlewski ran an impact investment fund.
“How can we use private sector solutions, our public-private partnerships to address this in a way that ensures fiscal responsibility but helps the next generation get ahead?” she asked. Then she commented, “It’s hard to get ahead when you can’t even keep up.”
Vruwink said, “We want to create legislation that is supported by business people, Republicans and Democrats alike. We want to keep young people in our state after they graduate. We want to come up with our own unique system of how we can help make student loans more affordable for our graduating college students who want to stay here and work in Wisconsin.”
Forum panelists included Dave Holterman, First Community Bank vice president; Scott Spaulding, DVM, Badger Veterinary Hospital board president and CEO; and Milton native Mark Fish, who worked overseas in banking and specializes in corporate finance and credit administration.
Holterman presented an idea of a private-public partnership that they had shared with Vruwink.
“The idea is something that already is found in financial markets,” he said, pointing to secondary markets for Small Business Administration loans and home mortgages.
Bonds would be sold to the public as a means of funding pools of refinanced loans, he continued.
He suggested the state would create the program, administer the underlying loans, and create a funding pool through the issue and sale of bonds to the public. The market would dictate the rates and the state would add a premium that would cover both the underlying administrative costs and offset anticipated losses in the portfolio. To further lower the effective interest rate, the bonds could be state tax exempt for the bond purchasers and the borrowers could deduct interest on their state tax return.
Holterman suggested a pilot program could be initiated with post-graduate students, whose student loan default rates are significantly lower than undergraduates’.
Fish said, “I think the goal is to be a win, win, win for everybody, for the applicant, the loan purchaser and for the state of Wisconsin.”
While there’s a lot of work to be done, Fish said, “A program like this can be a great boon to the economic development of the state and the benefit of the applicant. The key to the program is the good faith and credit of the state of Wisconsin.”
When the bank’s credit risk is low, he said a lower interest premium on the loans can be justified.
Spaulding, who has worked on state and national levels to address student loan debt, gave a real world example of why that is important.
The veterinary students on average graduate with about $160,000 in debt, he said while their average starting salary is $85,000 to $90,000.
Calculating a debt to income ratio, he said, “Minimum monthly payments don’t even pay interest.”
Spaulding said the interest rates are “unbelievable,” on $200,000 are 7-10%, and none of the interest payments are tax deductible.
Working to address the problem of student loan debt, he said, “It’s a great opportunity for a grassroots effort to really have an impact and help some of our hardworking kids out there that are trying to make the world a better place.”