Daily Ticker

What’s Really Wrong with Student Loans (Hint: It’s Not the Rates)

Daily Ticker

Congress has done it again. It’s failed to deal with an issue near and dear to many Americans. This time it’s student loans. Rates on subsidized student loans will double to 6.8% on Monday, July 1.

That may not sound crazy high but consider this: the 10-year Treasury rate is just below 2.5% and the 30-year Treasury rate is 3.5%. Even 10-year government bonds from Spain and Portugal pay less than 6.8%. Among EU economies, only Greek government bonds carry a higher interest—over 10%.

The new, higher rate will affect about 7 million students and families, who qualify for the loans based on financial need. And it will cost students and their families anywhere from $1,000-$4,500 more, depending on how much they borrow.

Related: Why College Grads Get Stuck with Lousy Jobs

“That’s a significant issue for a lot of families,” says Aaron Smith, co-founder and executive director of Young Invincibles, a national organization committed to expanding economic opportunities for Americans aged 18-34.

According to the Congressional Budget Office, the government is projected to pocket a record $50 billion on student loans this year. That’s more than the $45 billion Exxon made last year. Of course the government’s profit on student loans will rise if rates rise.

“We can’t let student loan interest rates act as a sneaky way to achieve deficit reduction,” says Smith.

Related: America's Student Loan Crisis: Generation I.O.U.

He tells The Daily Ticker that Congress will likely revisit the issue when it returns from the July 4 recess. “The best we might hope for is a one-year or two-year fix,” says Smith.

Smith is hoping for a more comprehensive package that also deals with the much bigger issue of college costs. “The cost of college is going up 5%, 6%, 7%, 8% every single year. That has to be part of the solution as well," he argues.

Actually college costs have increased more than 1,100% over the past 35 years, according to Bloomberg. Even health care costs haven’t surged as much, climbing 601% during the same period, according to Bloomberg.

Related: Despite the Student Loan 'Crisis,' College IS Worth It

The average annual cost for tuition and fees at a public four-year college is about $9,000 for in-state students and $21, 000 for out-of-state students, according to the College Board. The equivalent for private colleges and universities is $29,000. Add another $10,000 for room and board, then multiple that by four, and the cost of college is anywhere from $76,000 to $160,000, and sometimes more. Some students, of course, will qualify for financial aid, which will reduce costs, but even those who do don’t usually get a full ride.

Related: Sen. Sanders: Student Loan Rates Won't Double

Senator Bernie Sanders (I-VT) told The Daily Ticker “hundreds of thousands of young people don’t go to college anymore because college today is too expensive.” Higher rates on student loans “will make college even more prohibitive,” he says.

Echoing Sen. Sanders, Smith expects Congress will address the issue of higher loan rates when members return from their July 4 vacation. ”Like health care, this is a very complex issue and we need a variety of approaches," says Smith.

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