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Doubling the Burden of Student Loans, A Terrible Policy for the Nation

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Co-authored by Diana Arguello of LCLAA National

When my parents took a look around them, they knew there was no future for their children there. Having grown up in large families in the rural area of an impoverished country, my parents were used to hardship and working hard for an opportunity to move up. Unfortunately, the obstacles were too great and they weren’t able to get far in their education: my mother dropping out after third grade despite being an astute and interested student and my father unable to complete his college education—both because of a lack of money. Wanting a better future for their children they worked tirelessly for years babysitting, landscaping, and housecleaning, all the while raising two children and emphasizing the importance of education as the great equalizer.

Their hard work paid off and to everyone’s delight, my brother and I both earned a bachelor’s degree at our respective colleges. As I graduated, I took in the moment realizing that my 16 years of hard work coupled with countless time and effort from my parents had culminated in this amazing moment: we were living the American Dream.

In time, the post-graduation glow quickly faded and slowly this American Dream is feeling unreachable. Not all of us are fortunate enough to have access to scholarships or parents who can afford to pay for our education. Most of us have to rely on loans to pay for school hoping that after we graduate we will get a job, start a successful career and eventually start paying off our debt.  Finding a stable job is a daunting venture right now and due to the high rates of unemployment, we college graduates find ourselves in a very difficult situation when money is scarce and student loan bills are on the verge of becoming delinquent. These are the trials of the modern day post-secondary school student who must balance the demands of higher education with a series of rarely discussed obstacles.

One such obstacle is the immense cost of tuition. College students have to find the means to pay for exorbitantly high tuition rates – that in the last 30 years have increased by 1,120 percent, by taking on loans which initially appear manageable, but wind up being never-ending.  Student loans are essential for about 12 million students that require additional financial support to pursue their academic goals.

This year more so than any other year, commencement not only signifies the culmination of a college degree, but it also marks the beginning of an arduous and uncertain future. Recent graduates will begin navigating the complicated process of finding a job in a difficult market with the threat of doubling federal student loans looming. This process has become even more complicated since the bills  that could have stopped the doubling of student loan interest rates by the July 1st deadline were struck down by the Senate on June 6th. Recent graduates are now facing a high unemployment rate and likely rising interest rates that make the execution of loan payments difficult. The situation is further exacerbated by the rising cost of tuition.

Sixty percent of all students have to take out loans to cover tuition and fees, myself included. In 2010, 19 percent of American households had student loans, and as the need for money increases, the total amount of student outstanding loan debt has skyrocketed reaching close to 1 trillion dollars. As students face the consequences of acquiring an educational loan, they struggle to make payments due to the difficulty of finding a job. Without a job with a living salary to accommodate present needs with enough left over to save to repay loans, graduates cannot keep up with the payments leading to an increase of 13.4 percent in the 3-year national cohort default rate as reported by the U.S. Department of Education. It is remarkable how doubling student loan interest will not only affect student borrowers’ finances but also American society as a whole.

Student debt burdens future consumers by preventing them from actively participating in the economy. Students with more debt are unlikely to purchase a car or a home, thus jeopardizing the market.  Unfortunately, many graduate students find themselves trapped with no job and with rising debt, they have few options including returning home after graduation. Individuals burdened with student debt commonly decide to live with their parents, thus the origin of the term “Boomerang Generation”. While students are usually comprised of young people in their twenties, student loan debt is not limited to only young people.

Americans ages 60 and above are still paying back their school debt, which adds up to about $36 billion. Student debt has surpassed both car and credit card debt in recent years. Two out of five borrowers have become delinquent at some point after they have initiated the loan repayment process. As a result of the student debt crisis, The Health Care and Reconciliation Act was passed in 2010, and the following year, President Obama established an executive order to create some temporary relief for student loan debtors. Such legislative action is helpful, but temporary and hardly addresses rising unemployment and tuition rates.

                On July 1st, 2013, interest rates on federal subsidized Stafford student loans, which are provided to low- and middle-income students, are scheduled to double from 3.4 percent to 6.8 percent. This higher interest rate will increase the burden of the already afflicted student loan debtors, and will jeopardize the individuals who want to pursue their post-secondary education. The President and Congressional Republicans proposed different plans to prevent the increase on federal student loans, though they both start the same way: tying rates on student loans to the interest on a 10-year Treasury note. That rate is expected to be about 2.5 percent next year, climbing to just over 5 percent in 2018.

It is highly important that the President and Congress work together to find a long-term solution that will guarantee students viable and workable pay rates that will prevent them from ending up in unmanageable debt. In order to solve this problem, it is necessary to create a solid long-term strategy that would alleviate the situation of current student loan debtors while also addressing the dilemma of doubling interest rates. Solving this important issue is critical to the growth of our nation and reaffirming the value of education in American society.

 

Pioneering American educator Horace Mann said it best: “beyond all other devices of human origin, [education] is a great equalizer of the conditions of men -- the balance wheel of the social machinery". My parents inculcated in me the importance of education because they understand what Horace understood--education changes the dynamics of society and an educated person can change the world around them. Without education, we are trapped. Higher education frees us by providing an opportunity to absorb knowledge, think critically, and construct the world us. As the cost of education becomes higher, we are denying an important tool to future generations while simultaneously diminishing the full potential of graduates who are saddled with debt. In order to truly be accessible, high quality education must be made available within the means of those aspiring to achieve it. This increase in Stafford Loan Rates is a bad policy for the future of our nation.

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