In the weeks leading up to July 1, college students across the nation waited anxiously for Congress to come up with some sort of viable compromise to prevent federal student loan rates from doubling from 3.4% to 6.8%. On June 29, quite literally at the eleventh hour, Congress finally passed a $127 billion bill that addressed student concerns…sort of.
The bill dedicates roughly $120 billion to continuing various transportation projects — a jobs measure heavily supported by Congressional Republicans — while reluctantly providing the needed $6.7 billion to extend current student loan rates. President Obama signed the measure into law on July 6, taking full advantage of the photo opportunity during an election year.
The media hailed the passage as a success — “Congress Saved Student Loans!” — while largely neglecting to point out that the law only protects current interest rates for one year, limits eligibility for subsidized student loans, and alters the traditional 6 month grace period that recent college graduates enjoy. More importantly, even if the bill actually addressed each of these problems, it still wouldn’t come anywhere close to addressing our real student loan problems.
Last fall, news broke that student loan debt now exceeds credit card debt among American families. We have more than $1 trillion in student debt alone. The average student graduates from college owing more than $25,000 in loans. For most recent grads, that amount is almost what they’ll earn in a year. We are sending students to college to earn a degree that is supposed to be the key to their future financial success, but we are requiring that they virtually sell their souls in order to obtain said degree.
All of that is bad enough, but the issue is no longer merely a student rights issue. Unless something changes — and soon — we may face another economic bubble on a scale similar to that of the devastating housing bubble that launched this last recession.
From 1976 to 2010, the prices of all commodities rose 280 percent. The price of homes rose 400 percent. Private education? A whopping 1,000 percent. Why have education costs risen so dramatically? Of course there are many factors at play, but one of the biggest is student loans themselves. With the federal government and private lenders practically tripping over themselves to throw money at students, the money came easy; colleges saw this and knew that they could raise tuition rates without much backlash. Tuition rose, so students borrowed more; tuition rose some more, so students borrowed some more.
The result: Recent college graduates leave school saddled with large amounts of debt. Thanks to the recession, they too often find themselves unemployed or underemployed. No one making $8 an hour as a barista at Starbucks can afford the payments on tens of thousands of dollars in student loans, so these students either put off repayment for as long as possible (accruing massive amounts of interest that they have no means of paying off) or they just stop payment altogether. Eventually, this bubble will burst; and since the federal government holds more student loan debt than any private lender, it will be taxpayers footing the bill.
To make matters worse, at least underwater homeowners had some options. They could declare bankruptcy or sell their houses to pay down the loans. Students have no such options. Even in bankruptcy, student loans aren’t erased, and I’d like to see someone try to sell their college diploma and receive enough to pay down their student loans.
It’s wonderful that Congress extended the low student loan interest rates (although it would have been nice if they’d done that in the first place instead of arguing about whether or not students deserve help), but it doesn’t really solve anything. Until tuition rates are brought under control, until student lending practices become more responsible, and until a higher education really is accessible for people of all economic backgrounds, our student debt problems are far from over.