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Interest Rates on Student Loans Set to Double Even as Students Fall Deeper Into Debt

Aviva Shen
Think Progress / News Report
Published: Wednesday 10 April 2013
The average student is now grappling with more than $27,000 in debt and the national student debt has reached $1 trillion; meanwhile, the federal government is making a profit on these interest rates, according to a brief by student advocacy groups.
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Student loan interest rates are scheduled to double on July 1, from 3.4 percent to 6.8 percent. Congress extended the lower rate on federal student loans for a year in an effort to control the nation’s formidable student debt crisis, but will now have to decide whether or not to cancel the interest rate hike once again.

The interest rate is a rare instance of bipartisan agreement; last year, both President Obama and GOP presidential candidate Mitt Romney promised to hold down interest rates on subsidized Stafford loans. Student loan rates have not been changed since they were set in 2001, even though student debt has exploded in the past decade. The average student is now grappling with more than $27,000 in debt, and the national student debt has reached $1 trillion. Meanwhile, the federal government is making a profit on these interest rates, according to a brief by student advocacy groups:

The brief, citing a February report from the Congressional Budget Office, said the federal government makes 36 cents in profit on every student-loan dollar it puts out, and estimates that over all, student loans will bring in $34 billion next year.

“Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt,” said Ethan Senack, the higher education advocate at the United States Public Interest Research Group, which is issuing the brief with the United States Student Association and Young Invincibles, an organization for people 18 to 34.

According to the C.B.O. report, the government will get 12.5 cents in revenue next year for every dollar lent through subsidized Staffords, 33.3 cents per dollar in unsubsidized Staffords, 54.8 cents on each dollar of graduate school loans, and 49 cents per dollar of parent loans, for a total of $34 billion a year.

Borrowers of subsidized Stafford loans make up more than a third of those using federal student aid. More than two-thirds of those borrowers are from families with an annual income under $50,000.

The Senate’s recent budget resolution extended the lower rate indefinitely, and the House will soon have legislation to extend it for 2 more years. However, postponing the rate hike will not be enough to mitigate the ever-worsening student debt crisis. In the first three months of 2013, borrowers defaulted on their student loans in record numbers. According to the Department of Education, 6.8 million federal student loan borrowers have now defaulted on $85 billion in debt. Sequestration has only worsened the problem, driving up fees for some federal loans.

Students are relying more heavily on federal loans to pay for education as states have uniformly gutted higher education funding, pushing tuition costs to new heights. If states were willing to raise taxes rather than slash education funding, tuition costs could be stabilized. The Consumer Financial Protection Bureau is also working on an initiative to help students pay off their debt and find alternative refinance options. Campus Progress and other groups have also pushed for reductions in the interest rate on federal student loans.

But students aren’t the only ones suffering from this crisis. Student debt is directly responsible for the feebleness of the housing recovery. College graduates saddled with debt and unable to find suitable wages have avoided buying houses and taking on mortgages, while others aren’t able to qualify for loans because of their excessive student debt.



ABOUT Aviva Shen

 

AVIVA SHEN is a Reporter/Blogger for ThinkProgress. Before joining CAP, Aviva interned and wrote for Smithsonian Magazine, Salon, and New York Magazine. She also worked for the Slate Political Gabfest, a weekly politics podcast from Slate Magazine. Previously, she was part of the new media team in Ohio for the 2008 Obama campaign. Aviva received a B.A. from Barnard College.

 

They could find 15 trillion

They could find 15 trillion to bail out their wall street buddies but students,like the rest of us,get the shaft.This is why those students in Quebec were right to protest.Governments load on students has risen steadily for decades.

Post secondary education in

Post secondary education in the US should be FREE - paid for by the govt - for every eligible American student.

Post secondary education is an investment in our collective future, not just a way for an individual to have a better life (though that alone is adequate justification.

Its just that our scientist

Its just that our scientist are being suckered into false data reporting and our students are being taught the very same rules of finance as the last generation and nothing new is being introduced into the market that will give us workers a competive edge on the chinese and the goverment is going broke along with the states and their promises for underfunded retirement 256
billion in our state of california with just last election of a half percent increase in sales tax. So to help relieve student loans pay for promised retirement and balance ssi along with current military and social programs there has to be a new way to bring us out of our shit hole we are in. If the universities are so smart why havent they figured that out and have classes on that one issue shithole 101 or is it shithole 102. We need a new way to gain wealth and putting people back to work and the colleges are not doing that they are still teaching get to the top and forget all those that are under you mentality which is now probally more than 50% of our population.
And lets not forget 50 million on food stamps and welfare and ssi for just being born here and exorbinant wages for anyone over the labor force and in admin put the brakes on and turn it all around. Voting wont do a dam thing unless it is over the internet for all elections and new laws should be over the internet as well to be voted on as well as all advertising for persons running for office no more tv ads just a a free website for campaigning with equal time offered for free.Get the whores out of office. Make a money website and have the people of this country pay off everyones debt randomly so our economy can grow it could be like a lottery and as long as you pay in people get there debt paid off, as we could do better with money than our goverment they are the ones holding us up for progress and a better economy no one else to blame but our goverment.

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