On July 1, 2012, students across the nation will see the interest rates on their student loans double from 3.4 to 6.8 percent.
In 2007, as part of a plan to help make college more affordable, interest rates were cut temporarily to 3.4 percent on Subsidized Stafford Student Loans. Since then, students have reaped the benefits of a system that makes college more affordable than before. The College Cost Reduction Act of 2007 reduced subsidies to lenders in the amount of $19 billion, and attempted to ensure the saved monies would be spent easing student costs. Among these efforts to reduce cost were lower interest rates, rewards for college that effectively lowered tuition, and increased grant money.
However, the temporary cut in interest rates is set to expire on July 1, and Congress has yet to take any action to extend the low rates. President Obama called on Congress in January to renew the current rates at 3.4 percent until legislation is passed that further re-structures the FAFSA system to permanently make college more affordable while also ensuring the fiscal incentives for lenders.
With the economy still in a fragile recovery and many students from lower and middle class families still struggling, Congress needs to act and, at the very least, push the expiration date for the lowered interest rates forward a year.
For the highest borrowers, a doubling in the interest rates will mean a substantial extra $5,000 in crippling student debt upon graduation. On average, student with subsidized Stafford Student Loans will pay $2,800 more than they otherwise would.
For graduates, this means potentially shifting career goals from more lofty, yet less lucrative plans, to careers that can save credit scores from withering away. Student-loan debt already mandates a significant amount of attention in all Americans, both old and young. Indeed, Americans aged 60 or older owe nearly $36 billion dollars in loans, and more than 10 percent of those loans are delinquent. With an expiration of the lowered interest rates, surely, the burden of debt will weigh even heavier.
Through prevention of the expiration and improvement of the current Pell Grant system, higher-education could become an even greater agent of social mobility. But, if interest rates increase, and Congressman Paul Ryan’s budget proposal is successful in moving Pell Grants from mandatory to discretionary funding, higher education will become a system in which the amount of opportunity is even more directly related to income level.
A college degree is becoming increasingly a greater necessity in professional life. The roadblocks were temporarily moved aside, and nearly 8 million students have benefited. The current system is by no means perfect. But to make college even less accessible for the poor would have a devastating effect on inequality and upward mobility in this country. Congress can–and must–act on this important deadline.