Politicians and political groups on both sides of the aisle have painted the student loan rate debate as the question de l’année for young Americans. But 20-somethings rejoicing over the law signed today by President Obama that reportedly “stops student loan interest rates from doubling” are in for a rude awakening. The odds that the interest rate on your student loan will go down are slim to none. In other words, you got punk’d.
In an effort to ‘win the youth vote,’ both sides attempted to champion student loan rate reforms. Legislators and media framed this issue as a huge win for young people, when, in reality, relatively few young Americans will be affected by the reforms signed into law today.
The legislation agreed to by Congress and the White House ties interest rates on all new Stafford student loans to the financial market. Rates will now be determined by how much it costs the government to borrow money. Currently, the market rate is low, allowing the government to keep interest rates on federal loans taken out after July 1, 2013 low. Undergraduate students taking out Stafford loans in the second half of 2013 will see their interest rate climb slightly to 3.9 percent from the current rate of 3.4 percent. Without the legislation signed today, those rates would have returned to 6.8 percent – the rate originally approved by Congress years ago.
As of 2012, graduate students no longer qualify to receive subsidized Stafford loans (loans the government pays the interest rate on while you’re in school), but their rates on unsubsidized Stafford loans (loans the student is responsible for paying the interest rate on at all times) will decrease from 6.8 percent to 5.4 percent.
Of note is that this ‘monumental’ legislation only reduces the interest rate on new federal student loans. Thus, anyone who is over the age of 22 will not be affected unless he or she is a non-traditional student or a graduate student. Furthermore, the legislation deals only with Stafford loans – a very specific type of loan that only 34 percent of all undergraduate college students take out. Meaning, only one in three current undergrads will actually see their student loan interest rates go down and only on future loans. Loans previously taken out by current and past students will not be affected in any way.
While one in three students is no small number, it’s certainly not the grand bargain students likely think they’re getting. Instead of taking on pressing issues that affect all young Americans, Congress – with the help well-meaning outside organizations – has sold young people a bill of goods. Roughly 16.1 percent of all young Americans ages 18-29 are unemployed or underemployed, which is the highest sustained rate since WWII. That number increases to 53 percent when only recent college grads are considered. This has led to more than 12 percent of young borrowers defaulting on their student loans each year, according to a new report from the Consumer Financial Protection Bureau, which ruins their credit and costs their peers – the taxpayers – millions. Past due payments on student loans is now exceed $1 trillion dollars.
A more effective use of Congress’ time would be to pass legislation that makes it easier for America’s businesses to create good paying jobs so that Americans of all ages can afford to pay off their student loans. Congress should also seriously take up reforms to higher education. The presidents of Auburn, Ohio State and George Mason should not reap in annual salaries exceeding the President of the United States.
As President Barack Obama said at today’s bill signing,”[E]ven though we’ve been able to stabilize the interest rates on student loans, our job is not done, because the cost of college remains extraordinarily high. It’s out of reach for a lot of folks, and for those who do end up attending college, the amount of debt that young people are coming out of school with is a huge burden on them; it’s a burden on their families.
“It makes it more difficult for them to buy a home. It makes it more difficult for them if they want to start a business. It has a depressive effect on the economy overall. And we’ve got to do something about it,” Obama continued.
President Obama is correct. Making college more affordable should be a top priority of Congress and his administration. However, as any Washington insider knows, any progress young people hope to see this congressional session toward significantly reducing the cost of college is essentially dead, as Congress likely won’t return to ‘youth issues’ in the next two years having already tackled the problems so many politically active youth organizations have been complaining about.
Permanently keeping the interest rates low on certain student loans appears on the surface is a tally mark in the win column for Millennials, but young people shouldn’t let our federally elected officials off the hook so easily.
