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Students facing bigger debt

College students who apply for federally subsidized education loans may be looking at sticker shock this summer.

The reason is the interest rate on the Stafford subsidized student loans is set to double in July, going from the current 3.4 percent to the 6.8 percent that is in the federal statute governing the loan. That has a lot of students worried that they won’t be able to meet their financial obligations, so much so that more than 130,000 letters have been sent to Congress asking them to stop the increase.

That, however, is easier said than done as Washington’s elected officials battle over spending that has the nation heads toward its fourth consecutive year of deficits exceeding the trillion dollar mark.

The Obama administration says that keeping the rate at its present level would the 7.4 million student borrowers who would be affected an average of more than $1,000 over the life of their loans.

Stafford loans are popular because of the low rate and because the federal government pays the interest on the loan while the student is still in school. The Congressional Budget Office says the annual cost to keep the student borrowing rate low is about $6 billion annually.

Students had the 3.4 percent rate for the 2011-12 year because the Democratic-controlled Congress in 2007 passed legislation to reduce the rate by 1.1 percent a year until it reached that level. The maximum that a student can borrow is $23,000, which must be repaid within a 10-year period. Doubling the interest rate to 6.8 percent would increase the interest on the maximum loan repaid in the maximum allowable time by $5,000, or $500 a year.

So, the question is whether taxpayers — including the students — should absorb $6 billion in debt a year to save a student at most of $500 a year in interest.

Also, we should note that the default rate on student loans is rising. On Tuesday, federal judiciary officials said that cases concerning defaulted student loans increased by 1,588 cases — 58 percent — in the fiscal year that ended last Sept. 30.

What it boils down to is education.

A college graduate should be able to handle an additional debt of $500 a year. The main problem is that students who are young and just getting out of the family nest don’t get the financial counseling that they should before they dive headfirst into debt.

That is where the system — at home, at school and at Capitol Hill — has failed the students.

Comments

gotanyfacts 2 years, 1 month ago

According to inflationdata.com, since about 1985 the increase in college tuition and fees is almost five times the overall inflation rate. While there are several factors involved in the massive increase, federally subsidized loans may be a part of the problem. The effect of higher tuitions and fees were ameliorated by the low cost of loans making the adminstrators of our colleges less concerned with keeping budgets under control. One would think that our leaders would have noticed, by now, that anytime the government attempts to make something "more affordable", the long term effect is the very opposite.

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