Keep Student Loan Interest Rates Low
Fifty years ago college was a luxury. Back then, you could still graduate from high school and get a good paying job that would guarantee you a place in the middle class. Those days are gone.
A postsecondary education is the ticket to economic success in America. We know that the jobs of the future will all require some kind of education or training after high school.
And while it’s never been more important to have a degree, a certificate or an industry recognized credential—it’s also never been more expensive.
Since 1995, college costs across the country have risen almost five times faster than median household income. As a result, students and their families are taking on more and more debt. Borrowing to pay for college used to be the exception; now it’s the rule.
Next month, millions of America’s newest college graduates will leave school to enter the job market. As they do, a new challenge awaits many of them: how to pay back the student debt they’ve accumulated over the last four years.
Two-thirds of students are borrowing to get their degree, and they’re graduating with more than $26,000 in debt. In an economy still recovering from the worst downturn since the Great Depression, paying off a sum that large can be a daunting.
To make matters worse, a policy change is coming that will make getting out of debt more expensive for over 7 million young Americans: Without Congressional action, the interest rate on subsidized Stafford loans is set to double from 3.4 percent to 6.8 percent starting July 1, 2012.
Based on the average loan amount, doubling the subsidized Stafford loan interest rate will add more than $1,000 in total costs. For students who borrow heavily to go to college, it could cost even more. Only Congress can keep these interest rates from doubling.
Last week, President Obama traveled to universities across the country to call on Congress do its part to keep college affordable by stopping student loan interest rates from doubling this July. With so many students struggling to both make ends meet and afford the skyrocketing price of a college degree, now is not the right time to heap more costs on top of them.
As we work to get the economy back on track, no one is suggesting it would be a good idea to double interest rates on credit cards or home mortgages. Why then do some believe it’s a good idea to double interest rates for students?
We all have a role to play—the President, Congress, parents, students and schools—in making college affordable and keeping the middle class dream alive. Our administration is continuing to do its part: Despite being in one of the most challenging budget environments in history and cutting almost all-domestic spending across the board, President Obama is increasing the investment in higher education.
The Obama Administration is providing billions of dollars a year in aid to needy students through Pell grants and helping students to better manage their debt after graduation with programs like income-based repayment and public service loan forgiveness. The President is also proposing a number of initiatives that would continue to make college more affordable, including doubling the number of work-study jobs within five years; making the American Opportunity Tax Credit permanent; and providing new incentives for states and institutions to keep college costs from escalating.
President Obama cannot—and should not—do this work alone. In 2007, a bipartisan majority in a Democrat-controlled Congress and a Republican president came together to lower interest rates on these loans because it was the right thing to do. This is not about politics. It’s about doing right for America’s students—and for our nation’s economy.
Now Congress has an important decision to make. Do they double interest rates for Stafford loans, adding more debt to students already struggling to make ends meet? Or do they invest in the future by helping to keep interest rates where they are? For me, the choice is clear. We have to educate our way to a better economy. And as President Obama has stepped up to meet the challenge, I hope leaders in Congress will step up as well.
Arne S. Duncan ’86 is the United States Secretary of Education.