As of August 2013, it appears that the U.S. Congress has come to a compromise that will roll back the doubling of interest rates on student loans from 3.4 percent to 6.8 percent. The compromise ties student loan rates to the 10-year Treasury note, adding 2.05 percentage points for undergraduates and 3.86 percentage points for graduate students. That will keep rates for undergrads below 4 percent for the 2013-2014 academic year. With rates that low, it’s debatable whether lowering them any more would help students in the long run.
Of course, any reduction in interest rates for student loans means less to repay, but interest rates don’t seem to be the problem these days. In fact, many economists and other experts argue that it would actually be a better idea to stop subsidizing student loan rates and instead allow them to carry market rate interest rates. For example, Neal McCluskey, Associate Director of the Cato Institute’s Center for Educational Freedom, told U.S. News & World Report that higher rates would encourage potential students to think a little harder about borrowing money for school.
Student loan costs threaten the U.S. economy with many experts predicting that the more than $1 trillion in student loan debt currently outstanding will sap money from people for years to come that could be spent on other purchases. If student loans become a drag on the U.S. economy, they can threaten the global economy as well.
As the costs of college have risen, students have taken on more and more debt. One estimate of college costs says that the costs of a four-year private school education has more than doubled since 1980, while during the same period, the cost of a two-year technical school degree has risen more than 50 percent. At public colleges, the rise has been steeper. The cost of in-state tuition rose 86 percent in just the dozen years from 2000 to 2012. That rise over time has led to an increase in student borrowing, but that increase accelerated in the late 2000s because of the recession. According to a June 2013 report from the Federal Reserve, student debt was the only type of consumer debt to increase through the recession, going from roughly $550 billion at the start of the recession to more than $1 trillion at the beginning of 2013.
Even a Reasonably Prudent Person can’t escape the long arm of student loan debt. [Salon.com]
The Consumer Financial Protection Bureau has released its Private Student Loans Report. [CFPB]
Bloomberg editorial slams financing of higher education. [Bloomberg]
What if there were no student loans? Corvette Forum tackles the question. [Corvette Forum]
Wells Fargo lowers the interest rate on student loans. In other words, get suckered more gently. [Wall Street Journal]
A discussion of student loans in light beige: WNYC’s Brian Lehrer talks Anya Kamenetz, author of DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education and Generation Debt, and Robert Applebaum, founder of ForgiveStudentLoanDebt.com. [WNYC]
Spend more money on community colleges, or lower student loan interest rates? A community college dean weighs in. [Inside Higher Ed]
On the other side: an NYU grad who says spend money on vocational programs. [policymic]
Occupy Student Debt? Occupy Student Debt. [Occupy Student Debt]
Students need money. This Pitt staff editorial argues students need student loans. (Not true.) [Pitt News]
Student debt keeps going up and up and there’s no end in sight. It’s conceivable that everyone could soon come to the conclusion that a high-priced education is not what it was once worth. Like the housing bubble, the student loan bubble could pop. Not everyone can afford a McMansion in the ‘burbs, and not everyone can really afford to attend Luxury University.
Dan Kadlec of Time Magazine writes that creative solutions are needed. But how can we start?
- Pwn (v.) Slang term derived from the verb own, as meaning to appropriate or to conquer to gain ownership. The term implies domination or humiliation of a rival.