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Unless Congress acts, on July 1, the interest rate for 73,051 student loan borrowers in Connecticut will double from 3.4 percent to 6.8 percent. According to an issue brief released today by ConnPIRG, the rate increase would hike the cost of Connecticut students’ loans by $68.4 million. That translates into a $937 increase in debt per student, per loan.
“Student loans should make college more accessible so that we can be better prepared for the future,” said Ed Courchaine, President of the Undergraduate Student Government at the University of Connecticut. “But instead the federal loan program is burying us in debt.”
At issue is the interest rate for subsidized Stafford student loans. The low 3.4 percent rate was set to expire in 2012, but Congress and the President temporarily extended it for one more year. Now the interest rate is set to double to 6.8 percent on July 1 unless Congress acts to extend the current low rate.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up for buying a home or starting a family. Just last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in Connecticut currently has $28,783 in student debt.
Subsidized Stafford student loans are offered to the neediest students, who get hit particularly hard by high levels of debt. Sixty-eight percent of all subsidized student loan borrowers are from families with incomes of less than $50,000.
In addition to the direct impact on students, the nation’s economic recovery as a whole could be hastened by easing the burden of high student loan debt. Despite the number of unemployed workers looking for jobs right now, the lack of an educated workforce remains a persistent problem for our country, making it even harder to meet the economy’s needs. In Connecticut, by 2020 67 percent of all jobs will require a bachelor’s degree or certificate.
“Keeping the interest rate low on student loans will make college more accessible and send an urgent signal to students, workers, and the unemployed to get the postsecondary training needed to adapt to new economic realities,” said Abe Scarr, ConnPIRG Director.
In addition, ConnPIRG projected that, if Congress stops the interest rate from doubling, the $68.4 million saved by students could be spent in Connecticut’s consumer economy rather than being used to pay down student debt.
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate a whopping $50 billion in revenue for the federal government this year.
“Congress should keep in mind that the ultimate goal of investing in students is to invest in our future economy. It is shortsighted to generate profits now off the backs of college students while pushing them deeper into debt in the process,” said Scarr.
The revenue generated by the student loan program comes at the expense of student borrowers, who go deeper into debt as a result. An increase in the student loan interest rate would allow the federal government to profit even further while adding to students’ debt load.
“Students and families consider higher education to be an investment in the future,” explained Scarr. “Yet Congress seems to be working against that investment - and unless they act now with the future of students in mind, then it’s about to get even worse.”
Several comprehensive student loan reform plans are pending in Washington, DC, but none have won support from student and consumer groups. The U.S. House passed a bill two weeks ago that increases interest rates even more in the long-term than if the rate is allowed to double. The President has proposed a plan that keeps rates at 3.4 percent in the near term, only to allow them to increase above 6.8 percent later.
In the Senate, Sens. Tom Harkin (D-IA) and Jack Reed (D-RI) have proposed a short-term solution which ConnPIRG supports, a two-year extension of the low 3.4 percent rate that is paid for by closing corporate tax loopholes. A majority of the Senate, including both Connecticut Senators, voted to support S. 953 the Student Loan Affordability Act on June 6th. The 51 yes votes were not enough to invoke cloture and overcome a filibuster.
“We thank Senators Blumenthal and Murphy for voting for students on Thursday,” said Scarr,”and call on Congress to act now to stop interest rates from doubling.”
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