There is plenty of noise about avoiding problems posed by a looming deadline for Congress, but little progress. On July 1, the interest rate on federally subsidized loans is set to double, exacerbating a troubling drain on the economy.
Indiana’s recent graduates already are shouldering crushing debt from student loans. If Congress doesn’t act, the interest rates on new subsidized loans, known as Stafford loans, will double, from 3.4 percent to 6.8 percent. Consider that the average student loan debt for Indiana students in the class of 2011 was the 11th highest in the nation – $27,500 – and you can understand the urgency. The nonprofit Institute for College Access and Success estimates the higher interest rate will add $4,000 to a standard 10-year repayment plan. Students go into repayment six months after leaving school.
Congress passed a one-year extension of a 2007 relief bill last year. Both the administration and Republicans appear intent on a long-term solution to the problem this year, although they appear far apart on what that solution should be.
Rep. Marlin Stutzman was one of eight Republicans to vote last month against a GOP-sponsored bill to tie the interest rate to the rate of a 10-year Treasury note plus 2.5 percent. It would fluctuate with the market under an 8.5 percent cap.
While I thank my colleagues for taking a positive step in the right direction, I voted against today’s legislation because it isn’t the long-term solution our students deserve, Stutzman said in a statement after the vote. As they enter a dreadful job market carrying massive debt, young graduates feel yet another consequence of Washington’s top-down controls that are driving up the cost of education. It’s time to tackle soaring tuition costs with the market-driven reforms our kids deserve.
The nonpartisan Congressional Research Service found that the market-driven GOP proposal would have added about $1,000 in interest costs on $19,000 in total borrowing.
Sen. Elizabeth Warren, D-Mass., proposed a measure this year to reduce student loan interest rates for one year to 0.75 percent, the rate banks pay for overnight loans, while Congress seeks a comprehensive fix.
If we can invest in big banks by giving them low interest rates on government loans, we certainly can do the same to help students get an education, Warren said. Our students should not be a profit center for the government, and the July 1 deadline should not be turned into an opportunity to make more money at the expense of young Americans who are working hard to get an education.
A solution to the interest rate problem is needed immediately, and then soon thereafter there needs to be a permanent solution for rising student debt. The Project on Student Debt recommends more information and education for borrowers, along with policies to reduce the need to borrow. Increasing Pell Grant amounts and tax credits would help.
The cost of not acting is great. Students leaving college today are burdened by debts that keep them from buying cars, homes and other major purchases. The repercussions on the economy overall are fearsome and growing exponentially.