For many young Americans, a low interest rate on a subsidized student loan means the difference between a smooth start to a promising future and a lifetime of debt.
Now, the subsidized student loan interest rate could double if Congress doesn’t act, making higher education potentially unaffordable for millions.
The 2007 College Cost Reduction and Access Act, which fixed the interest rate at 3.4 percent, is set to expire July 1. With Congress’ inaction, students planning to get a subsidized loan would see the interest rate spike to 6.8 percent.
More than 8 million students are at risk of their loans’ interest rates doubling. To qualify for a subsidized loan, a student’s household income must be less than $60,000. But the bulk of these students come from families that earn less than $30,000 a year — already an economic disadvantage.
The good news is that leaders in both political parties don’t want the interest rate to rise, particularly in an election year. Various proposals for the lower interest rate are floating in Congress. Senate Majority Leader Harry Reid would keep the interest rate at the current level and fund the difference by closing loopholes in public pension plans. Another proposal would tie the interest rate to the 10-year Treasury rate, increasing the rate to 4 percent.
House Speaker John Boehner’s proposal of either requiring federal employees to pay more towards their retirement benefits or cap the amount of time a part-time student can receive a loan are not viable solutions. One proposal pits one generation against another, and the other discourages part-time students who must juggle job and family obligations.
Whatever Congress decides, any action will only keep the interest rate at 3.4 percent for another year. In 2013, Congress will have to face this issue again. This shouldn’t become an annual battle. Students and their families need stability.
Defaulting on student loans is a big concern, of course. On average, a college student graduates with $20,000 in debt, while more than half of all colleges come with a price tag costing more than $30,000 a year. In a tough job market, defaulting on a loan is a harsh reality that could be avoided with affordable interest rates.
In Florida, 17.6 percent of households dealt with the burden of college debt in 2009. Nearly half of all college students graduate with student loan debt. To keep education affordable for students, more than 200 student body presidents from Florida’s universities, including the University of Miami and Florida International University, wrote to Congress on the behalf of the state’s three million students.
Jose Cruz, vice president of higher education policy and practice at the Education Trust, which strives for affordable and equal education from Kindergarten to college, told The Miami Herald’s editorial board that keeping student loans’ interest rates low is critical to improving the U.S. economic picture. “We should be working to find ways to lower default risks,” he said. Exactly.
If the interest rate doubles, talented students might not pursue a degree. In this current economy, the next generation is poised to be less educated than the one before it. That cannot happen if the United States is to retain its competitive edge. As it is, more students throughout the world are going to college.
Student loan debt is an albatross that prevents U.S. students from getting ahead. Congress needs to act before July 1 and keep education affordable — America’s future is at stake.