“We should get it done as quickly as possible. We can do it today,” Senate Majority Leader Harry Reid said Thursday.
As national outrage over student loan rates doubling this fall continued to grow, Senators in Washington DC cut a deal late Wednesday night that returns rates to their previous state – but potentially at the expense of future freshman.
Under this deal, which would be good until the end of the 2015 school year, undergraduates would continue to borrow at a 3.8% interest rate (slightly higher than the previous 3.4%) and graduate students would be granted a rate of 5.4%.
This would come as welcome relief for students who left school in the fall and anticipated to return paying twice as much.
Should interest rates have doubled, it would have increased the final loan repayment by $2,600 – something that seems overwhelming for graduates entering a tough job market and with the prospect of repaying an average of more than $20,000, per capita.
This rate increase is also magnified by the growing need to borrow. Tuition has climbed above $26,000 with some schools running families more than $40,000 annually.
Differing Opinion on the Growing Problem
As student debt continues to crush the millennial generation, and college tuition continues to increase, lawmakers are split over the best way to solve the problem. Republicans favor tying student loan interest rates to financial markets while Democrats push to extend the low interest rates, giving them time to rewrite the Higher Education Act.
With what is sure to be a marathon 2016 Presidential election on the horizon, neither party wants to be blamed for these increased costs during a time when youth are so politically vocal and connected to one another.
A vote on the issue is expected to come as early as today and, should differences be shored up in the House and Senate, President Obama will be able to sign the Bill this fall. However, many are skeptical given the nature of this legislative class.
Additionally, should the bill pass, it would retroactively lower the loan rates for those students enrolled in summer programs and borrowed after July 1st.
Why Immediate Action Matters
As Federal student loan debt continues to rise, it famously topped $1 trillion and surpassed credit card lending in 2011, a generation of college graduates are falling into student loan default and financial ruin. The Pew Research Trust calculates that students and their parents borrowed more than $76 trillion dollars to pay for school this past school year.
Default, a term used to describe loans that have been delinquent for 90 days or more, is still on the rise and has increased by more than 3% since 2011. This number can be misleading considering it includes all those still in a grace period that exists for students still in school.
Those loans aside, the number is much closer to 30% – 1 in 3 – of the total number of Federal student loans.
A sobering thought in terms of future home sales – those expected to drive the economy are returning home, out of work and with no purchasing power.