You know Congress is broken when 80 to 90 percent of the public supports policies that keep interest rates on student loans where they are, rather than doubling from 3.4 percent to 6.8 percent, and yet the Republican House blocked efforts by the Democratic Senate to maintain the status quo. As of Monday, the rates doubled; the government will pocket the windfall.
The loans involved fall under the subsidized Stafford loan program and have been one of the least expensive forms of loans available to students. The maximum amount a student can borrow through the program is $23,000. If you double the rates on the maximum amount of the loan, the increase in interest payments is about $4,500. At that amount, it is not a life-or-death issue. It’s a hardship, but college students with these loans will survive.
And yet the result is galling. Nationally, the total amount of student loans has increased from $550 billion in 2007, the beginning of the recession, to $1 trillion earlier this year. As importantly, the cost of a college education has gone up 27 percent in the past five years.
Adding insult to injury, the most anyone is paying at a bank for interest rates these days is far closer to 3.4 percent than 6.8 percent. Heavens, hardly anyone pays 6.8 percent in today’s market, unless it’s to a loan shark or venture capital. For comparison, banks pay about 1 percent on a hefty amount for Certificates of Deposit, and a checking account with a $1,000 minimum pays about 1/10th of one percent interest.
Congress, experts in the field say, is likely to reverse the hike when it returns after the Independence Day recess, but it leaves you wondering how to fix an institution that keeps stumbling over the simplest of things.
— Angelo S. Lynn