College Loan Interest Rate Hike: US House Passes One-Year Extension, President Promises Veto
Even without an interest rate increase, the Consumer Financial Protection Bureau already found student debt to be more than $1 trillion, higher than even the debt incurred from credit cards
April 27, 2012With federal college loan interest rates set to double on July 1, a flurry of activity has begun. While Members of Congress and college students called for lawmakers to permanently cap current interest rates, a related bill offering a one-year extension was fast tracked to a floor vote in just two days. On April 27, the Interest Rate Reduction Act sponsored by Illinois’ Rep. Julie Biggert, passed the lower chamber on a 215-195 vote. The vote came despite a White House vow to veto the limited measure if it reaches the President’s desk.
In the meantime, an estimated 7 million college students from middle and low-income families are still wondering what will happen if no legislative compromise is found. Even without an interest rate increase, the Consumer Financial Protection Bureau already found student debt to be more than $1 trillion, higher than even the debt incurred from credit cards.
According to the Congressional Budget Office, freezing loan interest for just one year would cost the federal budget $6 billion. A companion bill to that sponsored by Rep. Biggert would strip $6 billion from monies set aside for health care reform’s Prevention and Public Health Fund to cover the cost of the one-year extension.
The real issue for students, parents, and Washington decision-makers is whether today’s Congress will once again provide bipartisan support to contain the rising cost of higher education lending. In 2007, the College Cost Reduction and Access Act became possible through significant support across party lines. A majority of lawmakers agreed to cut the cost of college loan interest from 6.8 percent to its current 3.4 percent.
Early this year, legislation was introduced by Sen. Jack Reed (RI) and Rep. Joe Courtney (CT) to permanently set the loan interest rates at 3.4 percent. Substantial numbers of co-sponsors also signed on: 15 in the Senate and 127 in the House. Yet neither of these bills received a hearing, normally the first step towards a floor vote. With House passage of a one-year interest rate extension, these two bills are in a legislative no-man’s land, students have been handed a 12-month reprieve on costs; and no one can say with certainty when or if a permanent solution will be found.
“The prospect of raising student loan rates is like nails on a chalkboard”, said New York Senator Charles Schumer. “College tuition has skyrocketed at universities and colleges across the country, placing a huge burden on middle class families.”
Many college students agree. In recent days, several college and university newspapers have reported on this looming issue, some taking an editorial stand on what it means to today’s collegiate.
At West Virginia University the student publication, Daily Athenaeum said in an editorial, “Students are already struggling to keep up with rising tuition and living expenses and, if anything, the government should be working to make college more accessible to high school graduates.”
Similar expressions were echoed in an editorial by The Minnesota Daily, the University of Minnesota student newspaper. “Student debt throughout the U.S. has compelled recent graduates to put off choices such as home-buying, marriage and childbearing. One in four young Americans have moved back in with parents after having lived elsewhere. The delay of such choices has an impact on the overall economy causing some to call student debt a new ‘bubble’.”
A new analysis by academicians with two universities - Northeastern and Drexel and the DC-based Economic Policy Institute found that last year over half of bachelor’s degree graduates under the age of 25 were either unemployed or under-employed. This disastrous economic measure was felt by 1.5 million graduates. Further, just last month the nation’s student debt surpassed $1 trillion and continues to climb.
For African-Americans, the rising cost of higher education poses a unique predicament. In 2010, according to BlackDemographics.com, black college students numbered 3.8 million. While this figure represented a 2 million increase since 1993, the number of black college graduates with a bachelor’s degree increased just one percentage point since 2000 and is still 10 percentage points lower than the number of graduates for the entire country.
These statistics suggest that while many black students enroll in colleges and universities, those who actually graduate are far fewer in number. Further, if students leave higher education without a degree, the deferral on student loan payments end – contributing to a financial challenge of paying back those loans without the higher incomes derived with a college degree.
As Senator Reed has said, “Making college more affordable is key to unlocking America's economic competitiveness. Business leaders know it is vital for young Americans to get an education beyond high school. If today's students cannot afford college, businesses will not have the workers with the education and training they need to keep our economy competitive and dynamic far into the future.”
Charlene Crowell is a communications manager with the Center for Responsible Lending