As of yesterday, interest rates on federally subsidized Stafford loans doubled. The result? Higher payments and more costly loans for students, and an increase to the nation’s already unsustainable $1 trillion student loan debt burden.
Congressional proposals to establish reasonable rates for students have failed so far, but there is still time to act – and come up with a long-term solution that benefits students. Such a solution must keep rates lower than they are now (at 6.8%), must not pay down the debt on the backs of students, and must include a cap on interest rates.
A cap is critical because interest rates are projected to increase over the next 10 years. In fact, the Congressional Budget Office (CBO) recently reported that interest rates on are rising faster than it had originally projected. For example, the rate on the 10-year Treasury note (which is the “market-based” rate that all the current long-term proposals use) was at 2.5 percent on July 1. In May, when these market-based proposals were developed that rate was only 1.81 percent. That’s a huge spike in about two months, and not one that was anticipated. It also suggests that CBO might be right – rates could rise faster than expected. If Congress ties student loan interest rates to this market rate without also providing a cap, students could be saddled with high, permanent interest rates – and more debt – for the foreseeable future.
Students who have to take out loans to finance their higher education should not be subject to a volatile economy. They deserve to know what their interest rates will be and to be protected from high rates. They also deserve a prompt solution by Congress.
Cross-Posted at I AM NOT A LOAN.