Student Loans: Interest Rates Set to Rise If Congress Doesn't Act
If Congress doesn’t act by July 1st, the federal student loan rate will double from 3.4% to 6.8%, effectively doubling the amount that 7 million millennials owe for their education. With all this talk about how the GOP would benefit from courting the millennial vote, one would think they would step up and do something about this before the current rate expires.
One would think.
Congress postponed this rate increase last year during the campaign cycle because it was good politics. Neither party wanted to screw millions of millennials four months before an election. However, these days no one seems to be talking about student loan rates. Most top-level officials are spending their political capital on the issues of the moment: immigration, gay rights and gun control. These are, of course, incredibly important issues, but as millennials we must make sure that our representatives stay focused on the economic needs of our generation.
In response to the release of the president’s budget last week, student and millennial organizations released a report outlining how much money the federal government makes from the student loan program (CBO estimates $34 billion next year alone) and arguing that the government shouldn’t be making money off of students in need.
“Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt,” said Ethan Senack, the higher education advocate at the United States Public Interest Research Group, which issued the report with the United States Student Association and Young Invincibles.
So they have two and a half months to fix this whole thing before it becomes a serious problem.
There are a few things in the works.
The president’s budget suggested setting interest rates based on the market, which would remain fixed for the life of the loan. Market-based rates would remove the burden on Congress to change rates through legislation and would, in theory, keep rates lower than 6.8%. However, there would be no protection against soaring rates dependent on the state of the economy.
In the House of Representatives, Rep. Karen Bass (D-Calif.) has introduced a bill to cap the interest rate at 3.4%. There has yet to be movement. Remember that Democrats in the House are like the younger sibling at a high school party, waiting for their turn to be the cool kid with the popular friends. The Democrats in the Senate, where they are the cool kids, have expressed their support in maintaining the lower rate, but no proposals to pay for it were mentioned in the Senate budget.
(For a breakdown of more proposals, Young Invincibles has a great fact sheet.)
Students who take advantage of federal loans graduate with an estimated debt of $27,000. Politically, no elected official wants to see the loan rate rise. That doesn’t mean that Congress will be able to do anything about it.
Fortunately, both parties seem to have a deeper understanding of the power of the millennial vote. Modern Democrats have historically been the recipients of the youth vote. After the last presidential election, the GOP realized they have to modernize and court younger voters in order to keep their power. Hopefully, they will realize that one of the best ways to get our vote is to ensure that they don’t leave our millions of millennials in crippling debt. Hopefully…