Commentary & Opinion
3:45 pm
Thu May 3, 2012

Karen Hitchcock : The 'Perfect Storm' of Student Debt

Total student debt in America has hit the $1 trillion mark, exceeding, for the first time, national credit card debt.  Yet at this very moment, the airways and media outlets are alive with stories and opinion pieces regarding the imminent doubling of the interest rate on new Stafford Subsidized Loans to undergraduates.  While in college at least half-time, students holding such need-based, federally guaranteed loans pay no interest; rather, the government pays the interest which accrues during that time. These loans, currently at a  3.4% interest rate, represent a critical element in the total financial aid packages of many of our nation’s college students.  In 2007, Congress voted to gradually decrease by half the interest rates on these Stafford Subsidized Loans, a decrease which was completed in 2011.   If legislation is not passed to extend this lower rate, by July 1 all new loans will revert to the original 6.8% interest rate.  Some 7.4 million undergraduates who hold Stafford  Subsidized Loans would be affected and would have an estimated $1,000 added to their ever-increasing debt load at graduation.

As in 2007, there appears to be bipartisan support for extending  the lower interest rate for another year.  Both President Obama and Mitt Romney, the presumptive  Republican presidential nominee, support such an extension; and, just this past Friday, the Republican-dominated House voted in favor of such legislation. The Bill, however, will most likely be rejected by the Democrat-dominated Senate, not because the Democrats oppose extending lower student loan interest rates, but because, once again, Republicans and Democrats disagree passionately on how the costs should be covered – some $6 billion.  Republicans have recommended covering these costs with funds presently targeted to preventive health care services, part of President Obama’s 2010 Affordable Care Act. Democrats, on the other hand, have recommended two equally polarizing approaches: one, to regulate more tightly the payroll-tax rules for owners of so-called “S” corporations; and, two, to cut subsidies on oil companies. The results have been predictable.

This ongoing - and paralyzing -  ideological divide could have a major impact on the access of students from low- and middle-income families to our nation’s  institutions of higher education. The issues facing us, however, are much broader than a debate on how to limit the interest rate on a single type of loan – Stafford Subsidized Loans. Indeed, issues surrounding student financial aid represent but one factor helping to create a financial “perfect storm” for our young people and their families.

Overall student debt has never been higher; and, allowing the Stafford Subsidized Loan interest rates to revert to 2007 levels through congressional inaction would only exacerbate the debt situation for our students. Add to this the ever-rising tuition at most institutions of higher education, and the fact – recently reported in an Associated Press analysis of 2011 data – that some 53.6% of college graduates under the age of 25 are unemployed or under-employed due to both a weakened and a changing labor market.  Increasing tuition, heavier debt loads and low job prospects  ….  a “perfect storm” we must as a society address. I believe strongly that it is time to face not only particular loan and financial aid issues, but the whole array of challenges confronting our institutions of higher education—challenges which include affordability and access, levels of support from federal and state governments and how to best prepare our students to meet their career goals in a transformed labor market – issues at the very heart of our nation’s future global competitiveness.

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