Interest Rate Jump From 3.4% to 6.8% Would Cost Students Thousands
By Rick Green
April 03, 2012
As if it wasn't already a challenge, sending your kid to college may grow more difficult this summer.
Interest rates charged under a federally subsidized student loan program for low- and middle-income families are scheduled to double, from 3.4 percent to 6.8 percent. Because a federal law expires June 30, new loans under the Federal Direct Stafford Loan program will be a lot more costly, adding to the already frightening weight of debt. That student loan debt now exceeds $1 trillion, more than for credit cards and automobiles, with no sign of slowing down.
About 8 million students would be affected by the interest rate change. For a student who takes out $23,000 in loans, this would mean as much as $11,000 in additional financing costs over a 20-year payback.
I'll admit, I have a bias here. I've got a kid in college who gets a small Stafford loan. I also, long ago, worked for U.S. Sen. Robert Stafford, a Vermont Republican and the author of the loan program that bears his name.
But I'm also fairly typical — I think about this constantly, as do millions of families who are trying to figure out how to swing college in an era when most schools have utterly failed to contain costs. Nationally, the average price of tuition and fees at public universities grew by 62 percent during the past decade, according to the College Board. The price at private schools, already high, grew by 30 percent.
"People are watching this, particularly young people across America,'' said U.S. Rep, Joe Courtney, who spoke at a Capitol press conference Tuesday morning. Courtney, admirably, has made the student loan crisis a top priority this year, and his bill before Congress would extend the lower interest rates, matching a similar bill in the Senate.
"The higher education costs are impacting people's ability to pursue their own talents and dreams," he said.
Courtney's legislation isn't cheap. Increasing federal subsidies for these loans will cost about $4 billion, which seems like an impossible number in a year when Congress appears unable to agree on anything, let alone new spending. Last week, for example, a Republican budget-balancing plan that passed the House of Representatives would slash billions of dollars from the federal Pell grants, which directly aid low-income students.
The exploding cost of higher education is hugely complicated, raising questions about whether too many people are going to college. Critics accurately point out the long-term problem of the federal government always being there to cover the annual tuition increases that higher education foists upon us. A recent report by the Federal Reserve Bank of New York noted that one-in-four college borrowers now have past-due balances. The report also notes that, increasingly, it's older parents who pick up the ball with these loans.
"For families, this is becoming an unbelievable burden. There are some folks who could handle that increase, but this is going to continue compound these problems of rising debt and lower graduation rates,'' Courtney told me. "This is a program that is not concentrated with the very poor. It extends to a broad audience, and it makes it very dicey for them to ignore this."
This is probably why the two leading contenders for Connecticut's open U.S. Senate seat, Republican Linda McMahon and Democrat Chris Murphy, support an extension of the lower interest rates. Murphy, who appeared with Courtney at the Capitol Tuesday, said no politician can ignore this mess.
"It's a middle-class, bipartisan issue. Whether you are a Republican family or you are a Democratic family, you are getting whacked,'' Murphy said. "I don't think the Republicans want to let this become an election year issue."
I'm not so sure of that, listening to the Republican candidates for president. But the reality — right now — is that Courtney isn't trying to solve the whole cost-of-college crisis. He's looking at the 17,500 students from Connecticut who took out Stafford loans this year and the average Connecticut college graduate, who finishes with about $25,000 in debt.
Along with about 100 co-sponsors of his legislation in the House of Representatives, Courtney is trying to keep the dam from breaking for lower- and middle-class families. If we still believe that a college education is essential for the country's economic future, his colleagues ought to pay attention and find a way to pay for preserving this program.
Reprinted with permission of the Hartford Courant.
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