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COLUMBUS – Unless Congress acts, on July 1, the interest rate for 361,857 student loan borrowers in Ohio will double from 3.4 percent to 6.8 percent. According to an issue brief released today by Ohio PIRG, the rate increase would hike the cost of Ohio students’ loans by $322 million. That translates into a $290 increase in debt per student, per loan.
“There’s a large disconnect between our nation's growth in higher education and the reality of current economic times that’s not proportional,” said Joshua Westfall, a recent graduate of Ohio State University and former Director of Government Relations for OSU Student Government. “Congress needs to realize this trend and help fund higher education by not allowing student loan debt to become more detrimental than it already is, if they expect a prosperous future for America, both intellectually and economically.”
At issue is the interest rate for subsidized Stafford student loans. The low 3.4 percent rate was set to expire in 2012, but Congress and the President temporarily extended it for one more year. Now the interest rate is set to double to 6.8 percent on July 1 unless Congress acts to extend the current low rate.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up for buying a home or starting a family. Just last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in Ohio currently has $28,683 in student debt.
“As a student, I feel as though I’m being set up to fail,” said Matt Hill, a sophomore at Ohio State University. “We should be supporting our students, not taking advantage of them.”
Subsidized Stafford student loans are offered to the neediest students, who get hit particularly hard by high levels of debt. Sixty-eight percent of all subsidized student loan borrowers are from families with incomes of less than $50,000.
In addition to the direct impact on students, the nation’s economic recovery as a whole could be hastened by easing the burden of high student loan debt. Despite the number of unemployed workers looking for jobs right now, the lack of an educated workforce remains a persistent problem for our country, making it even harder to meet the economy’s needs. In Ohio, by 2020 59 percent of all jobs will require a bachelor’s degree or certificate.
“Keeping the interest rate low on student loans will make college more accessible and send an urgent signal to students, workers, and the unemployed to get the postsecondary training needed to adapt to new economic realities,” said Tabitha Woodruff, Advocate for Ohio PIRG.
In addition, Ohio PIRG projected that, if Congress stops the interest rate from doubling, the $322 million saved by students could be spent in Ohio’s consumer economy rather than being used to pay down student debt.
“When we cut funding for higher education, we’re cutting the opportunity of young Americans, plain and simple,” said Stuart McIntyre of the Ohio Student Association. “Our generation is being forced to completely alter our life cycles because of our student loan debt.”
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate a whopping $50 billion in revenue for the federal government this year.
“Congress should keep in mind that the ultimate goal of investing in students is to invest in our future economy. It is shortsighted to generate profits now off the backs of college students while pushing them deeper into debt in the process,” said Woodruff.
The revenue generated by the student loan program comes at the expense of student borrowers, who go deeper into debt as a result. An increase in the student loan interest rate would allow the federal government to profit even further while adding to students’ debt load.
“Students and families consider higher education to be an investment in the future,” explained Woodruff. “Yet Congress seems to be working against that investment - and unless they act now with the future of students in mind, then it’s about to get even worse.”
Several comprehensive student loan reform plans are pending in Washington, DC, but none have won support from student and consumer groups. The U.S. House passed a bill two weeks ago that increases interest rates even more in the long-term than if the rate is allowed to double. The President has proposed a plan that keeps rates at 3.4 percent in the near term, only to allow them to increase above 6.8 percent later. In the Senate, Sens. Tom Harkin (D-IA) and Jack Reed (D-RI) have proposed a short-term solution which Ohio PIRG supports, a two-year extension of the low 3.4 percent rate that is paid for by closing corporate tax loopholes.
Download Ohio PIRG’s issue brief, “Student Loan Debt in Ohio,” here: LINK
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