Can Congress Act in Time to Stop Doubling Student Loan Rates?
Congress is at it again.
Student loan rates are set to double unless action is taken soon. Now the argument has shifted on Capitol Hill, though, with the discussion centered around how much rates will go up, rather than if they will increase at all. Congress has until July 1 to resolve the issue.
The current rate is 3.4 percent, a low rate that is going to move upwards as a result of fiscal realities in Washington. However, both parties have their own ideas as what is best for the rate and the future of the federal lending program. If lawmakers choose to do nothing, the interest rate will double, putting the 7 million young people currently borrowing in a precarious financial situation. Such a hike would also make it more cost prohibitive to attend college, and could depress the number of kids who pursue higher education.
Congress seems to agree that letting the rate float is the route they would like to pursue. Both parties are considering tying the loan rate to the 10-year treasury note, though, as always in Washington, the devil is in the details.
Democrats do not feel that the government should profit from the lending program in anyway, with Senate Majority Leader Harry Reid making his opinion clear. “We don’t think there should be deficit reduction based on the backs of these young men and women who are trying to go to college.”
The deficit reduction part has been a sticking point for the GOP, as their actions in Washington are catered towards lowering the fiscal burden of the government.
While both Republicans and Democrats agree that floating rates are the way to go, some advocacy groups are not so sure. Pauline Abernathy, vice president of the Institute for College Access & Success, feels that “it’s very clear students would be worse off under that proposal than simply allowing interest rates to double [because they] would be lower initially but rise as interest rates rise.”
Interest rates have been on the rise this week due to Federal Reserve Chairman Ben Bernanke’s foreshadowing the end of quantitative easing. Markets have flocked to treasuries in response, driving up rates on the 10 and 3-year notes.
Total student debt is now almost $1.2 trillion, and 43 percent of 25-year-olds in the U.S. are carrying debt. Some speculate that this phenomenon is a bubble that will eventually pop, much like the housing market.
The massive amount of student debt also has other ramifications for the economy. Carrying such amounts of debt means that students are delaying substantial purchasing, something that is a prerequisite for expansive economic growth.
Rohit Chopra, student loan ombudsman at the Consumer Financial Protection Bureau, told lawmakers, “When young workers are putting large portions of their income toward student loan payments, they’re less able to stash away cash for that first down payment.”
Democrats in Congress have tried to buy more time to decide, as they did last time, but some are calling them out on this strategy now. ” What will we know in a year that we don’t know now?” questioned Independent Senator Angus King of Maine.
Odds are, not much. However, both sides continue posturing while American students wait for a clear, sensible solution to the enormous financial burden of college.
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