By Danica Johnson
Coalition on Human Needs
Most college graduates depart campus with a degree in hand, invaluable experiences, new friends – and a mountain of student loans to repay as they begin their careers. Unfortunately, things just got worse for students nationwide. On July 1, subsidized Stafford loan rates doubled from 3.4% to 6.8%, despite efforts in Congress to come to an agreement and keep rates low.
Paying for college has always been a struggle for middle and low-income families, and it’s just getting more difficult as tuition fees increase, less federal student aid is made available and interest rates soar. Most college students emerge from their years of study saddled with a formidable amount of student loan debt – on average, about $27 thousand worth.
Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world.” If this is true, why has getting a higher education become almost synonymous with inheriting a world of debt?
Research shows that it is disproportionately low-income individuals, women, people of color, and first generation Americans who carry this debt. But as the economy struggles and tuition rates continue to rise, more and more middle-class Americans must turn to high-interest student loans in order to afford their degree.
The alternatives are few, and ending your education after high school is not much of an option if you want a career that pays at least a decent salary. The Bureau of Labor tells us that 57% of US jobs available between 2006 and 2016 will necessitate at least some type of postsecondary education.
Last week, the Senate passed Senator Tom Harkin’s (D – IA) Bipartisan Student Loan Certainty Act, which lowers the interest rates for the 11 million student borrowers taking out new federal student loans after July 1, 2013. The bill instantly decreases interest for all borrowers – down to 3.86 percent for undergrads and 5.4 percent for graduate students. Rates for PLUS loans drop from 7.9 percent to 6.4 percent as well. Maximum interest rates in future years are capped at 8.25 percent for undergraduates, 9.5 percent for graduate students, and 10.5 percent on PLUS loans.
But the implications of the bill are complicated, warn some youth advocacy groups such as Young Invincibles (YI). They believe that the Bipartisan Student Loan Certainty Act is more of a quick fix to score points for lawmakers than a long-term solution. According to YI, while the bill reduces interest rates in 2013 and takes pressure off of Congress, it leaves students susceptible to large rate increases in the future. Because the bill sets interest rate caps so high and enables them to increase at a rapid pace, many low and middle-income families may suffer overwhelming interest rate surges in upcoming years – making postsecondary education less of an option for struggling students while making the government a profit of $184 billion over ten years (according to the Congressional Budget Office).
The bill passed 81-18, with seventeen Democrats voting against it. Massachusetts Senator Elizabeth Warren, as quoted in an article in The Hill, said “I cannot support a plan that raises interest rates in the long-term while the federal government profits off them. This is obscene. Students should not be used to generate profits for the government.”
An amendment championed by Warren and Senator Jack Reed of Rhode Island that would have set the maximum loan cap at 6.8 percent instead of 8.25 percent was rejected, as well as Senator Bernie Sander’s amendment to require reauthorization of the bill after two years’ time.
The Bipartisan Student Loan Certainty Act now moves to the House, where the bill’s supporters will attempt to achieve passage before the August recess.
While the future of the student loan debate remains uncertain at present, the Senate will most likely revisit the issue next year as they work to reauthorize the Higher Education Act.
In the meantime, student advocates and many in Congress will continue fighting for a better compromise that protects students from higher loan interest rates in the future as well as the present – and that does not allow the federal government to profit from student borrowers.
Danica Johnson is the Communications Manager at the Coalition on Human Needs, an alliance of national organizations working together to promote public policies which address the needs of low-income and other vulnerable populations. Social justice has always been a central focus for Danica; she started to campaign on pro-worker union issues at the tender age of eight. Danica has a BA in History with minors in Political Science and Spanish from UCLA. Follow her on Twitter: @duckyfem.