In the United States, the only commodity that has outpaced inflation is education. A bachelor’s degree is now becoming mandatory even for menial jobs. It often leads students into low-paying jobs and high-interest debt. This poses a direct threat to the next generation, our generation, because an economy dependent on debt-riddled workers will never flourish.
In 1958, Congress passed the National Defense Education Act. This act created a way for students to pay for college, with Congress regulating the interest rates. The idea of this loan would become what we know today as the Perkins Loan. This opened the door for many who would not otherwise be able to pay for a higher education. In 1972, the reauthorization of the Higher Education Act set up the basic system of the main types of student loans we know today.
The process of student loans can be a complicated and confusing thing. Most students know the frustration of dealing with the loan applications and the fear of being debt-loaded in a not-so-great job market. On top of that, there is nothing positive to say about student loan debt, which now totals over $1 trillion in the United States. To make it a little easier, here is a rundown of the current loan types available:
* A **Direct Subsidized Loan** means that the government pays the interest on the loan while the student is in college. These are given to students that are found to have financial need. The interest rate currently stands at 3.4 percent.
* A **Direct Unsubsidized Loan** does not require financial need. These loans build interest the entire time, including when the student is in school. The student can defer the interest during a grace period, but the interest will accumulate. The interest rate for a direct unsubsidized loan currently stands at 6.8 percent.
* A **Direct PLUS Loan** is available to parents of dependent undergraduate students and students seeking a graduate or professional degree. These loans are lent by the Department of Education. These loans sit at 7.9 percent interest.
* A **Federal Perkins Loan** is given to undergraduate, professional and graduate students with exceptional financial need. Not all schools participate in the Perkins Loan. The amount of this loan is determined by the cost of the school minus the aid, scholarships and grants already given to the student. The interest of a Perkins Loan sits at 5 percent.
The current interest rates were supposed to rise last year, but Congress voted to extend the rates until July 2013, pending an agreement. The days are closing in and Congress has yet to reach an agreement on the new interest rates for student loans. If an agreement doesn’t happen, come July 1, 7 million students will see their direct subsidized loans double from 3.4 to 6.8 percent.
Democrats have proposed two bills that might solve this problem. The first is sponsored by Tom Harkin, D-Iowa, and Jack Reed, D-R.I. This would freeze interest rates for the next two years. This bill would cost the United States around $8.3 billion and Harkin suggests this be paid for by closing tax loopholes from tar-sands oil companies.
The second bill is sponsored by Elizabeth Warren, D–Mass. This bill suggests interest rates on Direct Subsidized Loans to be lowered to 0.75 percent. This is the same rate the United States government has set for banks to take out overnight loans. This seems like a great idea — give the students what you charge banks. However, overnight loans involve very short-term lending. The loans that would be given to students are generally ten-year loans — a much riskier lending than an overnight one.
Republicans seem to be, again, out of touch with the current economic plight of most millennials in school or the parents taking on their debt load. Rep. Virginia Foxx, R–N.C., said in April, “I have very little tolerance for people who tell me they graduate with $200,000 or even $80,000 in debt. There is just no reason for it.” Although the national average on a student loan amount is just $26,000, it is not uncommon for a student to only be able to pay for school with loans. The average bachelor’s degree costs around $60,000.
It is time Congress and the rest of the government see education as the most important resource in our country. A low-cost education is the only way we can obtain a strong economy with knowledgeable workers and educated voters.