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Washington state plans to get into the student loan business

State lawmakers want to offer student loans with 1% interest rates — but first they need to make sure their idea comes to fruition.

Why is this important: In 2017, at least 800,000 residents had student loan debt, a 35% increase from the previous decade, according to the state attorney general’s office.

  • High levels of student debt can hurt people’s ability to pay bills, save money, buy a home and even start a family, the report says.

What is happening: Earlier this year, Washington lawmakers approved $150 million to launch a state-run student loan program for students whose families earn the state’s median income or less.

Yes, but: There is a catch. The program will begin making loans in fall 2024, but only if a state review first finds the program financially viable.

Zoom out: While several other states offer some form of student loan program, most have higher interest rates than the 1% loans Washington seeks, according to the National Conference of State Legislatures.

What they say : State House Majority Leader Pat Sullivan (D-Covington) said he wants to create a new program because he thinks too many families have to take out high-interest private loans to pay for their graduate studies.

  • Sullivan, who sponsored the student loan bill, said the federal government assumes families can pay a certain amount based on their income level, but often they can’t afford it.
  • “It’s not fair to addicted students,” Sullivan told Axios. “If their parents don’t contribute the amount that the federal government pays, then they’re stuck with this hole.”

The other side: Republicans have expressed concern about using $150 million of taxpayer money to pay for the program, especially if students end up not repaying the loans.

  • “I have no problem risking a little, but we risk a lot,” State Sen. Keith Wagoner (R-Sedro Woolley) said during a March Senate debate.
  • State Senate Democrats also wanted to make sure the program was financially sound. “If you’re looking to make a long-term investment in higher education, you want it to work,” Senator Christine Rolfes, senior budget editor for the upper house, told Axios.

And after: State officials will design the loan program and hire an independent actuary to evaluate it.

  • A report is due to the governor’s office and the legislature by December 1.
  • If the analysis reveals that the program can stay afloat while offering loans at 1% interest rates, it will go ahead.
  • But, if the analysis finds the program won’t be self-sufficient, the legislature will take another look, Rolfes said.
  • That could mean spending the $150 million in a different way, such as increasing college scholarships, she said.
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