Interest Rate Increase Fires Up Student Loan Borrowers

Should student loan interest rates double next July, college-aged Millennials squatting inside academia’s ivory tower could find themselves entombed, indefinitely.  Passed by a Democrat-controlled Congress five years ago, the College Cost Reduction and Access Act, that reduced the subsidized Stafford loan interest rate to 3.4 percent, faces eminent demise should the current Republican majority decide not to intervene. However, that hasn’t deterred the tens of thousands of concerned students preparing for the fight of their adult lives.

If an increase does indeed occur, Kathryn Angleton, a senior at Florida State University studying economics, has already attributed it to several factors; namely our recuperating economy, and the budget battles being waged by state legislatures fighting record deficits.

“Policymakers constantly change the rates or specifics for loan qualifications as a short term solution, not taking into consideration the long term externalities that both the government and each individual student are faced with,” Angleton observed. “[W]ho’s to say policy makers won’t simply continue to increase the interest rates, thus keeping graduates stuck in a cycle of perpetual debt?”

On Tuesday, March 13, more than 130,000 letters from college students saturated the Capitol, pleading with congressional leaders to not return to the original subsidized Stafford loan interest rate of 6.8 percent; a rate that hasn’t applied to federal student loan borrowers beginning college after 2006.

In a report issued by the Dept. of Education last September, data indicated that of the 3.6 million student loan borrowers beginning repayment in 2009, nearly 9 percent – 320,000 borrowers – defaulted within the first two years. Compared to the record high default rate of 20 percent the Dept. of Education reported in 1990, these recent figures aren’t as extreme. However, there are indicators those numbers are on the rise again as more student loan borrowers, unaffected by the College Cost Reduction and Access Act’s passage, struggle underneath the burden of higher interest rates.

In a study released last March by the nonprofit Institute for Higher Education Policy, as described by reporter Tamar Lewin of the New York Times, two borrowers begin falling behind for every borrower who defaults. The five-year study, Delinquency: The Untold Story of Student Loan Borrowing, monitored approximately 8.7 million student loan borrowers – and their nearly 27.5 million loans – that entered into repayment between Oct. 1, 2004 and Sept. 30, 2009. Other key findings of the report revealed that roughly two out of five borrowers – about 40 percent – are delinquent at some point within the first five years of repayment. Consequently, those delinquencies – and eventual defaults – jeopardized the Dept. of Education’s efforts to recollect $11.6 billion of student loan aid.

Congressional critics of the College Cost Reduction and Access Act though charge that the federal government shouldn’t have assumed the authority to originate and disburse student loans to start with. Seizing upon estimates from the Congressional Budget Office that the interest rate deduction has cost U.S. taxpayers approximately $6 billion annually over the last five years, opponents to a continued decrease, such as Rep. John Kline (R-Minn.), criticized congressional Democrats for planting a “ticking time bomb” five years ago.

“[S]imply calling for more of the same is a disservice to students and taxpayers,” said Kline for the Associated Press.

Meanwhile, Sen. Jack Reed (D-R.I.) and Rep. Joe Courtney (D-Conn.) have reiterated Pres. Obama’s assertions from the campaign trail that a sustained 3.4 percent interest rate upon subsidized Stafford loans could potentially help 7.4 million borrowers save, on average, $1,000 each over the lifetime of the loan.

“A college education is key to success in today’s economy, but for many students, the spiraling costs of higher education are creating an immense barrier,” Courtney declared Tuesday, March 13 at a rally organized by the U.S. Public Interest Research Group (US PIRG), Rebuild the Dream, Campus Progress, and college students throughout the nation on the lawn of the U.S. Capitol. “At a time when Americans owe more in student-loan debt than credit card debt, it is critical that we prevent interest rates from rising further. We cannot allow a de-facto tax increase on middle- and low-income families to exacerbate this problem, especially as we work to continue our economic recovery.”

Both elected officials have collaborated to introduce a Student Loan Affordability Act (S.2051/ H.R.3826) into their respective chambers, preserving the 3.4 percent interest rate level. However, its fate still seems uncertain going into these next 100 days as fiscal austerity looms heavily over Capitol Hill this election year.

Joseph Gentile Expecting the unexpected, ever since my five o’clock shadow started popping up at four, has led me to a richer life managing other people’s money. Three years after completing a communications degree, and a single Statistics class, I defied the odds, and became a financial aid adviser who does math. I might still be at college, but my job has motivated to learn, and report, about developments in higher education from a Millennial’s perspective.

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