With just days left until the rates double, Elizabeth Warren’s popular proposal has not gained widespread support needed to be passed.
Once reasonably priced, college has become a nightmare in recent years for a new generation of students saddled with an average of $27,000 debt upon graduation. Nationwide, 39 million students have collectively amassed $1.1 trillion in debt.
Instead of offering students a lifeline, the federal government continues to pocket $50 billion each year on federal student loan interest, according to recent figures published by the Congressional Budget Office. The lowest interest rates for federal loans, currently at 3.4 percent, are scheduled to double to 6.8 percent on July 1 barring Congressional action. The increase could net the government an additional $21 billion.
“At the heart of the student debt crisis are the spiraling college costs that students and families are facing. The rise of student debt is directly tied to the dramatic increase in the cost of a college education. Holding colleges accountable and doing more to make higher education affordable has to be a top priority,” said Abraham White, communications associate for Campus Progress at the Center for American Progress, in a written statement to Mint Press News.
Some young students feel taken advantage of when the federal government makes interest on the loans they take out to pay already-costly tuition.
“I can understand private companies making profits off student loans — part of mine are private — but it doesn’t make sense for the government to be making huge profits off the backs of young students just trying to make themselves employable in a terrible economy,” said Kristy Currier, 26, of Detroit, in an interview with USA Today.
Student Debt: Predatory Lending
David Jesse, a reporter for the Detroit Free Press, reports that federal profits from student loans are set to exceed those of the most profitable Fortune 500 companies, including Exxon Mobil Corp., which made $44.9 billion in 2012.
It’s a two-fold problem that begins with the soaring cost of a college education. Colleges and universities have steadily increased tuition and fees 500 percent since 1985.
According to recent statistics, average tuition and fees rose by 4.5 percent at private colleges and more than 8 percent at public institutions last year. The National Center for Education Statistics reports that the average cost of a year of college at a public school is $15,918, while students pay $32,617 at the average private university.
This has created a situation where students have to work two and sometimes three jobs to pay down exorbitant student debts.
“In the beginning I did everything I could to stay afloat. I worked three jobs, all that would benefit and/or involve my son,” said Stephanie Snyder, a 2005 graduate with a B.A. in public administration. “I was a teacher’s assistant, a diner waitress and mentored at the local Young Women’s Christian Association.”
Snyder graduated with $38,000 in student debt and struggled to stay afloat when she sustained an injury after she enlisted in the U.S. Army National Guard at age 40.
“None of these hardships stopped the creditors,” she told Business Insider. “They started garnishing my paychecks at my last place of employment and offset my tax refunds which gave me little to care for my sons and pay my bills.”
Ellen Brown, president of the Public Banking Institute, reports that many other countries manage to keep the cost of higher education relatively low for all students. In Norway, Denmark, France and Sweden, the cost of college is less than 3 percent of median income, as compared to 51 percent in the U.S.
It’s an unlikely prospect for many observers who believe the government is in the loan business because it is a low-risk investment.
“In some cases, such as for student loans, the federal government has tools to collect from delinquent borrowers that private lenders do not have, giving federal programs a real advantage over private-sector companies,” the Congressional Budget Office wrote in a June 2012 report.
Unlike other debts, student-loan debt cannot be eliminated through bankruptcy proceedings. This means that under the current laws, the average student graduating with $27,000 in debt will have to find a way to pay this off even if they run into catastrophic financial straits.
“I think the government should cover costs, but certainly not profit off (student loans),” U.S. Rep. Tim Walberg, (R-Mich.), a member of the House’s higher education subcommittee, said to USA Today. “You’re basically taking that money from citizens who could use it.”
Rates Set to Double
Some states have tried to tackle the problem piecemeal by offering a tax credit or rebate to college graduates who remain in the state after graduation. In Michigan, state legislators are floating the idea of a tax credit for qualified graduates.
According to a report earlier this month by the Associated Press, “The credit would be equal to half the amount paid on qualified student loans in a tax year but couldn’t exceed 20 percent of the average annual tuition at Michigan’s public universities. To be eligible, students would have to be a state resident, a graduate of a Michigan university and have earned a bachelor’s degree.”
For Michigan students, it’s a step in the right direction, but it isn’t the panacea to a broader national problem.
U.S. Senator Elizabeth Warren (D-Mass.) proposed lowering the interest rate on government-subsidized Stafford loans, currently at 3.4 percent, to the Federal Reserve’s discount rate of 0.75 percent.
“This really is about our values,” said Warren in a statement earlier this month. “Have we become a people who will support our big banks with nearly-free loans, while we crush our kids who are trying to get an education? The student loan program makes obscene profits on the backs of our students. This is morally wrong, and we must put a stop to it.”
With just days left until the rates double, the proposal has not gained the widespread support needed for passage.
But it’s not the only plan currently being debated that would offer some relief, an encouraging sign for education experts and students who would like to see steps toward comprehensive debt relief in the future.
“There actually is an appetite in Congress to tackle student loan interest rates, with both parties introducing short-term and long-term proposals. But now, with less than two weeks before rates double for millions of students on July 1, time is running out. Leaders in both parties need to come together to find a solution that will help students today and lay the groundwork for a long-term solution to the growing student debt crisis,” White said.