Is the Student Loan Problem Unfixable?

As students in the U.S. fear loan rate increases, the House of Representatives and the President can’t seem to reach an agreement on how to best solve the problem.

Student loan figures are increasingly troubling in the United  States, with the total debt reaching $1 trillion among all student borrowers. Moreover, nearly a third of college graduates are unemployed, and 11 percent of school loans are now “seriously delinquent,” or at least 90 days past due. This debt load postpones home buying, which continues to be a crucial variable in restoring the American economy.

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Both parties are in favor of preventing a hate hike on indebted young Americans, but neither side can agree on a proposal, and the President also finds himself at odds with his own party. What has resulted is three separate proposals, with none of the options progressing forward, and none finding much praise from student advocacy groups.

The House Republican proposal ties rates to the 10-year treasury note with no cap on rates and no fixing of the rate once the loan is procured. The idea is, essentially, that as interest rates begin to rise, the overall economy should be improving, and student prospects should be better, thus enabling students to cope with higher rates as the market progresses. However, detractors want the ability to secure one rate for the life of the loan, providing stability for student borrowers. The House plan offers a cap of 8.5 percent on undergraduate loans, and 10.5 percent on graduate loans.

The President’s plan functions the same as the Republican plan, though it fixes the rate given to a student once the loan is issued. According to The Institute for College Access and Success (TICAS), a college accessibility advocacy group, the President’s plan only lowers rates for new borrowers by “letting interest rates rise steeply for students and families who borrow in the coming years.” Their concern is with the fairness of the proposal, as recent borrows will be subject to lower rates, but when treasury note rates begin to rise, future students will incur a much higher rate than current borrowers. The idea is essentially the same as the Republican plan, though, operating on the assumption that higher bond rates will equate to a better economic scenario for students.

As the debate on the subject begins anew, several Democrats in Congress have put forward separate plans from the President in an attempt to shore up concerns facing current solutions. Progress has stalled, though, and policymakers are at a stalemate, at least for the moment.

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Republican Senator Mitch McConnell was not thrilled about what he viewed as a political sideshow, saying, “With the President and Congressional Republicans in agreement on the need to provide a permanent reform to address the increase in interest rates on new student loans, no one should be fooled by today’s campaign-style event at the White House,” and adding that, “Here’s one issue where the two parties can and should find quick agreement.”

The President has vowed to veto the House measure should it make it to his desk.

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