In the absence of timely Congressional intervention, interest rates on new federally subsidized college loans are set to double on July 1.
On Thursday, my colleagues in the California Assembly passed AJR 20 by a vote of 77-1 to call on Congress to hold the rates steady for the next two years. Unfortunately, Congress recessed for the Fourth of July break without action and it appears a vote is unlikely before July 10.
As it stands now, in the absence of action by Congress and President Obama, the interest rate for new loans double from 3.4 percent to 6.8 percent on Monday.
Our students simply cannot afford this increase. As chair of the Assembly Higher Education Committee, I am urging Congress to act promptly and retroactively to hold interest rates flat.
As a nation, we should be eliminating, not creating, roadblocks for those who pursue their college degrees. In California, we’ve worked hard to keep public education costs lower than in the rest of the nation, even still the cost of college is too expensive for many students, and society suffers because of it.
When students and families can’t afford to pay for college they are often forced to rely on loans to fill the gaps. In California, 51% of students in the class of 2011 graduated with debt, averaging $18,879. Nationally, total student loan debts have exceeded $1 trillion, up from about $440 billion in 2008. A growing number of students are graduating and finding that they are unable to repay their loans.
Students are facing a scenario where an increasing number have to borrow more money to attend college, and the terms of borrowing are becoming less favorable to both students and the general public.
Student loan default rates have reached 13.4% nationally. When students can’t pay a loan back, the taxpayers end up paying for it; about $85 billion in government backed student loans are currently in delinquency status.
Money should not be an obstacle to finishing college; and when students do take out loans, we must ensure that rates are fair and repayment plans are reasonable. Our colleges and universities are designed to groom people for success in the world, but they are also life-changers for those who are unsure where they are headed.
I know from experience. I was at one time homeless, living in my car, with an unclear future ahead of me. College turned my life around. I was one of those 18-year-olds who was motivated, but wasn’t quite sure where my life was headed. After attending a community college I transferred to UC Berkeley for my undergraduate degree and then to UCSB for my graduate degree.
That journey was certainly not easy, but it armed me with the knowledge and skills to enter the world of public service. There are stories everywhere of students whose lives have been turned around by colleges and universities; finances should not prevent people from achieving their educational goals.
If the interest rate increase for Federal Direct Stafford Loans moves forward, it would cost almost 10 million borrowers an estimated $1,000 more per year of education over the life of a loan.
How can new graduates honestly afford that? These loans were designed to help low- and middle-income students. Over two-thirds of student loan borrowers are from families with annual incomes under $50,000.
These rising loan interest rates will undoubtedly discourage and prevent people from going to college. When students can’t afford to attend or finish college, it hurts our pool of skilled workers and limits our ability to create and fill jobs that fuel our economy. Without skilled workers, high-paying jobs will continue to erode, further hurting Californians’ and all American’s ability to compete in the global marketplace.
Let us urge Congress and the President to strike a deal quickly to halt the increase.