Knowledge Bound: The RSC Blog

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Posted on May 30, 2012 - 06:00 AM | Student Debt | Comments (0)

In 2007, a bipartisan Congress and a Republican president swept into law a cut in the interest rate charged on the subsidized Stafford Loan. It fell from 6.8% to 3.4%.
It’s still there, unless an extremely divided Congress fails to act before July 1.
Republicans and Democrats agree on the goal, but not the means. The political landscape in Washington, D.C., has changed dramatically. People sent to Congress to do the people’s bidding can’t even agree on a measure that is not only in their constituent’s best interest, but their own. It’s an election year and neither party wants to face voter anger over an issue they essentially agree on.
The two parties are squabbling over how to pay for the $6 billion dollars that would be lost if the interest rate stays at 3.4% percent. The government acts like it’s a loss, when in reality, student loans are a moneymaking enterprise for the Department of Education.
Consider these facts:
  1. Borrowers now owe $1 trillion in student loans. That $6 billion they’re worried about is only 0.6% (3/5 of 1%) of $1 trillion.
  2. That $6 billion is 0.5% of the total 2012 federal budget deficit.
  3. The amount college students borrow every year and have to pay back would cover that $6 billion in 2.5 weeks.
  4. The average student will save $1,000 if the interest rate stays at 3.4%. At 7.4 million borrowers, that’s $7.4 billion students and graduates will have to put back into the economy. The return to students will be 20% more than the return to the government.

Benefits of Low Student Loan Interest Rates

That $1,000 students save isn’t likely to be the difference between graduating and not graduating, but it could be the difference between a graduate moving in with mom and dad or living on their own.
It could be two month’s rent, four car payments, 10 weeks worth of grocieries or twenty weeks worth of gas. No matter how it’s spent, it’s likely to go right back into the economy – the local economy. $1,000 isn’t a lot. For that matter, $7.4 billion isn’t a lot. Not to the government anyway. But it means a lot to the students and communities who could come to count on it – particularly at a time when students are struggling to pay back their loans. In the last three years – after the 2007 cut – 675,000 students have sought debt relief.

Somehow, that number seems more significant than the $6 billion Congress is fighting over.

It may be that the art of compromise is dead in politics. It’s highly unlikely that the Republicans will surrender their stance on tax hikes, whether against the rich or anyone else. That means the Democrats will have to cave on budget cuts, but if the Republicans really want to freeze the interest rate – as George W. Bush did – does it all have to come from a preventive healthcare measure that has already been cut?
Perhaps each side could give up $3 billion from a pet project, keep the interest rate where it is and help themselves politically, the government fiscally, and most important, students and famlies economically.
To learn how RSC helps 8th-11th graders lower their student loan debt through good college prep, attend one of our upcoming web events. Keeping the interest rate on Stafford Loans where it is could save you a $1,000, but we could save you thousands more. Don’t rely on politicians, rely on yourself to get ahead.


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