The foundation of every state is the education of its youth.
These words are inscribed upon the interior of the Library of Congress just across the street from the Capitol where Congress failed to prevent student loan interest rates from doubling to 6.8 percent from 3.4 percent on July 1, making it even harder for the average American to afford an education.
Congress has until the August recess, when most students must finalize loan selection for the new school year, to come up with a compromise, but it may not be enough time.
“We saw this coming,” Sen. Tom Udall (D-NM) said. “This bus has been approaching a cliff for a year. That ought to be time enough to turn it around, and turn it around without throwing students underneath it.”
Loans: What you need to know
To put this into perspective, at 6.8 percent, a $5,500 Stafford loan repaid over ten years (the standard schedule) would cost about $9 more per month, or about $1,000 more over the life of the loan: on the maximum amount available amount for undergraduates–$23,000–you’d pay about $40 more per month, or $4,600 over the ten-year repayment schedule.
According to Susannah Snider, a writer for Kiplinger magazine, loans taken out between July 1, 2012 and July 1, 2014 will not have the six month grace period after graduation where loans do not accrue interest. As of July 1 of last year graduate students have not had access to subsidized Stafford loans. Unsubsidized Stafford loans have an interest rate of 6.8 percent and interest accrues when the loan is first disbursed, although it can be deferred until six months after graduation.
Snider also mentioned PLUS loans, which carry a 7.9 percent fixed rate. Using PLUS loans students can borrow the full cost of attendance, minus financial aid, but unlike Stafford loans, PLUS loans require underwriting. Bad credit histories can bar prevent applicants from qualifying for these loans, and if you don’t qualify for PLUS loans it is unlikely you will qualify for private loans.
Snider did mention some good news: Pay As You Earn became available to borrowers in December 2012. With Pay As You Earn you pay 10 percent of your discretionary income (amount of income earned over the poverty line) over 20 years. At the end of that period, any remaining amount is forgiven. To qualify, you must have taken out your first federal student loan–which must be a Direct loan– after Sept. 30, 2007, and received a disbursement from at least one loan after Sept. 30, 2011.
The game is rigged
In 2005, the Federal Bankruptcy Code was amended so virtually all student loans, public and private, have a no-discharge clause. This means student loan debt, unlike any other type of debt, cannot be discharged if you declare bankruptcy.
According to a chart from collegescholarships.org, if you take out a private loan from Sallie Mae and can’t pay it for 270 days it goes into default status. Sallie Mae is paid the full amount of the loan, plus interest, meaning they have virtually no risk on their end.
The government then sends your loan to collections with the General Revenue Corporation, which is also owned by Sallie Mae, and they charge you an additional 25 percent collection fee. GRC will get the government’s money, with interest, using a number of strong-arm tactics. GRC takes a 28 percent commission on your payment for their services.
A May 2013 study from the Georgetown University Center on Education and the Workforce lists the unemployment rate for recent graduates at 7.9 percent. 25 percent of students who take out federal student loans will default on them. The federal government is expected to profit to the tune of $51 billion on student loan debt this year alone.
With both the public and private sector making colossal profits on student loans it isn’t surprising when they fail to act in a way that helps students –after all it’s working well for them. But it sure as hell isn’t working for us; this year student loan debt reached $829 billion and surpassed credit card debt as a bigger source of American consumer debt.
Fight for the dream
Sen. Elizabeth Warren (D-MA) has introduced a bill that would reduce interest rates for students to .75 percent, the same rate the big banks pay, for a year while Congress tries to reach an acceptable compromise. She has promised to lead the efforts to find a long-term solution during that year.
“The long-term rising cost of college demands a bold solution. Some of us have seen smart students with a bright future forced to drop out due to the high cost of higher education,” Warren said. “This hurts them and America’s economic future. Education should be available to everyone — it’s the most important investment we can make in our nation.”
Ultimately, our higher education system needs a total overhaul to prevent the pricing out of poor and middle income Americans. Warren’s bill would be a step in the right direction, but it would simply be the beginning of a much-needed overhaul. Oregon’s recent effort to revamp their higher education system is quite promising, but only time will tell if it is a model that will work at the federal level. Incoming and current students need to remember that college has always been a key to the American Dream; we need to wake up and fight for the dream, both for ourselves, and the next generation of students, before it is too late.
Andrew Deskins can be reached at arg-opinion@ uidaho.edu