GUEST VIEW: Keep student loan rates affordable

This following editorial was published May 28 in the La Crosse Tribune, Wis.:

 

Hindsight says we should have seen the financial crisis of several years ago coming. Not enough people did, and it nearly took down our economy.

Now just as we’re on the slow path of recovery, with housing sales hammered by the financial crisis finally rebounding, Congress may fail to prevent another crisis that we can predict. Without action by July 1, the interest rates on federal student loans will double, putting an extreme burden on more than 37 million borrowers.

Apparently it’s too much to expect Congress to prevent freight trains from coming down the tunnel, even when we see the light from miles away. After all, Congress failed to avert sequestration, and its members apparently prefer partisan bickering and posturing over actual legislation that will help our economy.

There is about $1 trillion in outstanding student loan debt in the country, of which about $864 billion is federal student loan debt. About $85 billion is past due, and 37 million borrowers have outstanding student loan balances. Allowing the interest rate on federal loans to jump from 3.4 to 6.8 percent will do nothing to help improve collections and will only send more students into financial ruin and default.

The average student loan debt for students who graduated from college in 2011 is nearly $27,000. Minnesota has the third highest student loan debt average in the nation at just below $30,000. Winona State University has the highest debt of Minnesota public schools at $31,275. Saint Mary’s University, a private school, has students graduate with an average debt of $31,031. At least nine other private colleges in Minnesota that had data available have debt rates higher than Saint Mary’s.

Wisconsin ranks 16th, with an average debt of $26,238. University of Wisconsin-La Crosse student graduates in 2011 had an average debt of $23,034. Viterbo University student debt figures were not available.

But before we admonish our young people for borrowing too much money, nearly 42 percent of the outstanding debt is carried by people between the ages of 30 and 50, and 17 percent are older than 50.

Our economic system relies on citizens who borrow money to purchase items such as homes and cars. One only needs to look at what happened when that system nearly collapsed in 2008 to understand that importance. Because of their crushing student loan debt, many people will not be making the big-ticket purchases that could spur our economy. …

Sen. Elizabeth Warren, D-Mass., has proposed that student loan interest rates be set as at the same level that the Federal Reserve offers to big banks, which would be less than 1 percent.

But a bill passed Thursday in the House would change the interest to a variable rate based on the 10-year Treasury note plus 2.5 percent, with a cap of 8.5 percent. That would equate to about 4.5 percent at today’s rates. The bill was primarily split along party lines, with Republicans in favor and Democrats opposed. Reps. Ron Kind, D-La Crosse, and Tim Walz, D-Mankato, voted against the bill.

Walz said the bill would leave students with more debt than if rates were to double and said he wants to find a better solution.

“We should be encouraging access to higher education, not creating hurdles to it,” he said.

Rising default rates on student loans are obviously a concern, but we need to strike a balance between the federal budget and gouging. If we want more people in good jobs who are paying back their loans — and contributing taxes — access to higher education is critical.

Shame on Congress if it can’t figure this one out.

 

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Posted by Tribune News Services

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