The start of a new year spells financial trouble for many college students and recent college graduates. Another semester of tuition is due, or another round of new student loan payments begins.
The good news is this: The House yesterday passed legislation by an overwhelming vote of 356-71 to cut interest rates for student loans in half—from 6.8 percent to 3.4 percent. It’s about time.
Access to affordable education without the threat of unmanageable debt is a democratizing force that can provide equality and prosperity for all Americans. But with college cost increasing exponentially—over 40 percent in just the past six years—many students either can not afford to attend, or are overwhelmed with debt once they graduate.
High college costs negatively impact the lives of most Americans:
- Total student debt in the U.S. stands at $438 billion, and this does not count private loans. In 2005 alone, 8.5 million college students and parents borrowed $67 billion in direct federal loans and federally backed private loans.
- Six out of ten college graduates currently have educational debt. Four in ten of those with debt—and more than one half of African American and Latino borrowers—have what financial experts consider unmanageable debt.
- Between 2001 and 2010, 2 million academically qualified students will not go to college because they cannot afford it.
- More students and graduates are delaying major life decisions as a result of increased financial obligations. Thirty-eight percent of college graduates currently delay buying their first house because of debt, 14 percent delay marriage, and 14 delay having kids.
And college tuition costs impact more than just individuals in America. Student debt is outpacing the starting salaries of jobs in teaching and social work, which makes it virtually impossible for many debt-laden graduates to pursue careers in fields where they are desperately needed. Nearly one quarter of all graduates from public universities and almost 4 in 10 graduates from private universities have levels of student debt that would become unmanageable at the salaries of starting teachers.
Cutting interest rates on student loans is an important step towards expanding educational opportunity in the United States. But reducing interest rates alone will not ensure access and opportunity for young citizens.
Campus Progress, the campus activism arm of the Center for American Progress, has launched its Debt Hits Hard campaign and will hold an event highlighting the issue on Capitol Hill in January. The campaign proposes a four-pronged plan to reduce the debt burden, make college more accessible for all, and help young Americans prepare for their futures without unmanageable debt:
1. Reduce the interest rate on student loans.
2. Raise the maximum Federal Pell Grants to $5100. The maximum Pell Grant for 2005-2006 was only $4050. In 2002, the maximum Pell Grant only covered 41 percent of the cost to attend a public four-year university—down from 72 percent in 1976.
3. End wasteful subsidies to lenders that cost taxpayers millions of dollars. Federal subsidies backing the loans commercial banks make to students guarantee the loans against defaulting. But according to the LA Times, the banks earn profits equal to the rate of commercial paper, a quarterly index estimating the cost of bank borrowing, in addition to about 2.3 percent of the student loan.
4. Launch a public service ad campaign to raise awareness in low-income communities about financial aid resources.
The unmanageable cost of college tuition burdens American individuals and the country as a whole. Concern over whether the United States can remain economically competitive in the 21st century is only increasing. Cutting interest rates on student loans is the first step toward democratizing education and providing equality and prosperity for all Americans.
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