On July 1, the loan rate for student loans will double. This will reduce the number of students taking on this burden.
Democrats in Congress are deeply upset. They have published a report showing that the total student debt load has risen to almost $1 trillion. In this report, we read this warning.
The steady increase in student loan debt over the last decade has been driven by an increase in both the number of student borrowers and the average debt of those borrowers. Two-thirds of recent graduates have student loan debt. Those borrowers had an average balance of $27,200, which is 60% of the annualized average weekly earnings of young college graduates.
This sounds pretty bad. The Democrats think it is very bad. “The rising cost of higher education and increasing debt burdens for students pose a potential risk to graduates and the broader economy.” Their solution: keep loan rates subsidized. Keep them low.
Unless Congress acts, the interest rate on subsidized federal Stafford loans is set to double from 3.4% to 6.8% on July 1st. These loans accounted for over one-third of all student borrowing for the 2011-2012 academic year.
This will encourage students to borrow even more. But the Democrats reject such a notion. Here is what is needed.
• Keeping the interest rate on subsidized Stafford loans at the current level;
• Forgiving loan payments for certain graduates taking public interest jobs with lower pay;
• Restructuring loans based on financial hardship; and
• Converting private loans to federal loans to take advantage of programs already in place.
Don’t think of this as a government subsidy. Think of it as amnesty. The goal is to get more students into debt. Then offer them amnesty if they work for the government.
Allowing borrowers with loans issued through the Federal Family Education Loan (FFEL) program and from private lenders to participate in the PSLF program could encourage more individuals with large student loan balances to pursue careers in public service, such as working for AmeriCorps or the Peace Corps or other non-profit organizations, particularly if they can also participate in an income-based repayment program.
The Teacher Loan Forgiveness program, which discharges up to $17,500 worth of Federal Direct or FFEL loans for graduates who teach full time in a low-income elementary or secondary school, could be similarly expanded to private loans to further encourage public service as a viable career path.
But then who pays off the loans? “No one.” But wouldn’t that add to the federal deficit? “Deficits don’t matter.”
So far, mean-spirited Republicans have refused to delay the hike in loan rates.
Libertarians would stop the Stafford student loan program. That is way too radical for Congress.