What the Hell is Going On with Student Loans?

© Copyright 2012 CorbisCorporationThis week the American congress completely destroyed college opportunities for millions of American students. While attempting to turn back the automatic student loan interest rate increase that occurred on July 1, the Senate approved a measure that ties student loan rates to market rates. This means that from now on, student loans will be subject to market fluctuations that could increase interest to heights never before seen in federally-supported loans. The Wall Street Journal‘s Jonelle Marte explained it this way on MarketWatch:

“Rates would be pegged to the 10-year Treasury note, plus 2.05 percentage points for undergraduate students, 3.6 percentage points for graduate students and 4.6 percentage points for parent loans. And that rate would be fixed throughout the life of the loan. But future students could face higher rates if Treasury yields climb as analysts expect them to as the economy improves, critics say. Loan rates could climb to a maximum 8.25% for undergraduate students, 9.5% for graduate students, and 10.5% for loans taken out by parents-all above the current rate of 6.8%.”

Marte further explains that Mark Kantrowitz, publisher of the Edvisors Network, went on record as saying that “this is an interest rate increase masquerading as a decrease.” But Senator Elizabeth Warren, who fought against the bill, has already spoken pointedly about the hypocrisy of the current education loan system. Going against the bill’s support from her own party, which decided to compromise with the largely Republican-supported bill, Warren told the audience at the recent Generation Progress’s Make Progress National Summit that “The federal government will make $51 billion in profits off student loans. That’s more than wrong. It’s obscene.” Warren further announced, “I can’t support a proposal that squeezes even more profits out of our kids. In fact, I think this whole system stinks.”

I am not going to pretend to understand why any nation would undermine the chances of its citizens to get an education by saddling them with astronomically high interest rates on their student loans. There’s no way I can understand it, when I see my students struggle, every single day, to pay the bills and put food on the table and take care of their families, while at the same time trying to gain the skills and knowledge necessary to land a job that pays more than minimum wage. And that minimum wage? Even McDonald’s acknowledges its wages aren’t enough to live on, so the company encourages its workers to get a second job!

It’s pretty clear that our nation’s political leadership has no idea just exactly who goes to college these days. Many of the students at the community college where I teach can’t afford their textbooks, or to get the glasses I know they so desperately need when I see them squinting as they try to read the board at the front of the room. They can’t afford to take time off from their minimum-wage jobs, so they come to class sick, tired, and unable to concentrate or learn. I will forever be haunted by the heartbreaking image of one of my students trying not to cry outside my office as he told me that, paralyzed and confined to a wheelchair, he did not have enough money for rent so had been sleeping in his car at school in the cruel cold of a New England February. Yet he still came to class and apologized to me for falling asleep in class-which was probably the first time he felt warm enough to sleep in days.

This is a pretty extreme example of student poverty, but I don’t think that the representatives and senators in the U.S. Congress have any idea what the majority of student lives are like. And I don’t think they realize that the majority of our nation’s students are not preppy blond lacrosse players chugging from a funnel at a fraternity keg party. They are more like my students, and the new interest rate bill is going to crush their futures-and the nation’s future as well.

How the New Interest Rate Will Affect Students

Student loan debt is now the largest category of individual debt, even eclipsing credit card debt. American Student Assistance reports that the average amount of loan debt a student holds upon graduation as of October 2012 is $26,600. They also reveal that “only about 37 percent of federal student loan borrowers between 2004 and 2009 managed to make timely payments without postponing payments or becoming delinquent.”

That’s only going to get worse. Let’s do some simple math: if a student has $26,600 in loan debt, at an interest rate of 6.8% over twenty years, the total repayment amount is $48,731.14. That’s nearly double the original loan amount! As reported in USA Today, the Consumer Financial Protection Bureau pointed out that this kind of debt can be devastating to our economy: college graduates will be unable to purchase homes or cars, secure small-business loans, or save for retirement. Ted Beck, president and CEO of the National Endowment for Financial Education, told USA Today that the new interest rates mean that “You could have generations that never get in the economic mainstream…If you never get into the whole U.S. economic system because you’ve been held back by too much early debt … we could have a lot of people who just never really come anywhere near their potential.”

Do you want to hear the bad news now? It’s going to get worse for college graduates, because median incomes for grads have been falling for years. A study by Hamilton Place Strategies revealed that “in 10 years, the average amount of debt college students leave school with will equal what the median graduate will earn in just a year.”

Clearly, by going for short-term profits wrung from the dreams of some of our hardest working and most vulnerable citizens, Congress just torpedoed the future economic stability of our nation.

What Can Students Do?

All of this may seem like an insurmountable challenge to many college students or those thinking about going to college. But there are a few steps you can take to make it through college while minimizing your debt:

  1. Borrow as little as possible to cover your higher education expenses. You can still graduate from an elite private college even if you start out at a less expensive state or community college to limit expenses for a few years.
  2. Explore grants and fellowships. When you apply to college, apply only to those schools that offer plenty of financial support for their students, but also talk with financial aid counselors about any financial options you may not know about.
  3. “Pay as you go” by only taking one or two classes at a time. Yes, this may extend the time it takes to complete a degree, and that’s frustrating. But it may be one of the tough choices you have to make to get through college without accumulating so much debt that your future choices are severely limited.

No matter what path each student takes, there should be one thing all students start doing, right now: fight back. Students need to mobilize politically by contacting their representatives, forming advocacy groups on campus, and getting educated about their own economic situations and how they’ve been shaped by larger policies. Plenty of egregious laws have been passed in our history, but time and again citizens have rallied against them and had them repealed or replaced.  This is one time we all need to address a vast injustice, to fight in the present to preserve the future. Contact your local representative or Student Aid Alliance to get involved!

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Source: Inside Online Learning Blog