The House of Representatives recently passed legislation which gives college students a hand up and also slaps them in the face. On one hand, the legislation stops student loan interest rates from doubling, but on the other hand it ties the interest rate to the rate on 10-year Treasury notes – a rate which is already rising. This is a Republican bill, and it passed largely along party lines.
Currently, 7.4 million students with federal Stafford loans pay 3.4 percent interest, but the rate will double to 6.8 percent if Congress doesn’t do something about it. Democrats nailed the rate to 3.4 percent when they controlled the House. Republicans tried to raise the rate last June, but the public outcry was so loud that they backed down and extended the old rate for one year.
Well, here we are a year later and Republicans have decided it would be dandy to allow the interest rate to be reset annually. Interest would be the same as on a 10-year Treasury note, plus an additional 2.5 percent for the Stafford loans. The non-partisan Congressional Budget Office projects rates on Stafford loans will rise to 5 percent in 2014 and 7.7 percent in 2023. Stafford loans for college kids would be capped at 8.5 percent, and loans for graduate students and parents would have a top of 10.5 percent.
TransUnion, the credit information company, estimates that on average students graduating this year will leave college with a $24,000 debt along with their new diplomas. Fidelity, the financial services corporation, estimates the average student loan debt is closer to $35,000 per graduate.
The economist Joseph Stiglitz, a Nobel laureate, writing in the New York Times, pointed out a couple of dismal distinctions between the United States and other countries: “America is distinctive among advanced industrialized countries in the burden it places on students and their parents for financing higher education. America is also exceptional among comparable countries for the high cost of a college degree, including at public universities.”