Student Loan Drama Continues...

Congress, by failing to act, allowed the interest rate on Stafford loans for students with demonstrated need to double. While this affects only new loans for the Class of 2017 and those who need to take out new loans for the balance of their educations, student debt has already reached astronomical levels, almost a trillion dollars at last count. $1000 a year increase in interest payments may not mean much to some, but for a recent grad earning $35k a year in an entry-level job, it’s a lot, especially if some have other student debt borrowed privately to service too.  If no extension is passed, the interest rate will remain at 6.8%, the same that students pay who do not demonstrate need. Currently, students who do not qualify for federal student aid can borrow under the Stafford plan and pay the higher interest rate of 6.8% but if there is no extension, students who receive a subsidized below market interest rate on their loans will see their interest rate remain at the same 6.8% rate.  

Why does this stink? Because while the belief that students who cannot afford college without some loans should receive a below market interest loan is that of the majority of our lawmakers, they can’t seem to come to terms with finding enough common ground to pass an extension. Students are still having a tough time finding work even with a degree in hand and servicing debt from Stafford loans and possibly other loans used for education can be near impossible. Mark Kantrowitz, financial aid guru, thinks it isn’t a big deal, but many students think otherwise.

The pundits say the student debt bubble will be the next to burst. If Congress doesn’t enact new legislation, retroactive for new loans, they will have no one to blame but themselves if the bubble does burst. While some Congressional leaders think colleges need to consider why tuition increases have jumped more than any other tracked prices, punishing the students is not a solution.

Personally, I think if colleges and universities stopped spending enormous sums on glossy brochures and mailings, with the goal of driving up app numbers and driving down acceptance rates, and used the money to provide need based grant aid, everyone would benefit and students could borrow less and need to service less after graduation. My own kid received 54 lbs. (yes, I kept and weighed it) of promotional mail from schools during junior and senior year. Oddly the school he chose to attend sent one mailing and the one that sent the most, 22 pieces in all, was one he never even considered or showed any interest toward. College rankings force many schools to market themselves aggressively. Does this marketing have an influence on the increase in debt? I am absolutely sure it does.