Now is not the time to increase interest rates

BY GUEST COLUMN | APRIL 24, 2012 6:30 AM

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President Obama will address the looming college-affordability crisis that will affect hundreds of thousands of college students in Iowa and beyond.

A 2007 plan that steadily lowered the interest rate on federal Stafford Loans is expiring at a time when borrowers are struggling under the weight of rising college costs, tight family finances, and economic uncertainty. When time runs out on July 1, student-loan interest rates will double for almost 8 million students, from 3.4 percent to 6.8 percent.

Without a new plan, they could pay on average $2,800 more on their subsidized Stafford Loans than they otherwise would. Students with the most need will pay an additional $5,000.

Now is not the time.

A college degree is essential for a recovering economy. Currently, 59 percent of jobs require some postsecondary education. By 2018, the nation's workforce will need 22 million new college degrees. In addition, there will be a demand for at least 4.7 million new workers with postsecondary certificates. In short, the country needs more students to get a postsecondary education.

And that's not all. Higher levels of education correspond to lower levels of unemployment and poverty, so those with higher levels of education are less likely to depend on social safety-net programs, easing the squeeze on public budgets.

But right now, students are assuming too much debt to pay for it. The number of college students graduating with significant student-loan debt at more than $40,000 has tripled in the last decade. More than two-thirds of all college students now carry loan debt at graduation.

The national recession has led to weak state economies, which in turn have squeezed college budgets. The result is higher tuition costs being passed on to students and families throughout the country. The tuition increases will continue. In 2011, 46 states dealt with budget shortfalls, resulting in double-digit tuition increases. In 2012, 42 states face budget shortfalls.

Not only are students and families paying more for a college degree, but they have less money overall to deal with the increases they must pay. Unemployment remains high, at over 8 percent. Across all income levels, average family incomes are below what they were a decade ago. And if rising gas prices are any indication of the crunch on the family pocketbook, then the situation will remain the same in the near term.

So students and families are turning to loans. Student-loan debt affects where graduates live, the kinds of careers they pursue, whether they try to start a new business, when they start a family or purchase a home, and when they can start to save for retirement. In fact, Americans 60 and older owe about $36 billion in student loans, and more than 10 percent of those loans are delinquent. As many as one in four of all federal student-loan borrowers' repayment is past due. Late payments can negatively affect a borrower's credit score for years. Not only are borrowers who miss a payment less likely to qualify for home and auto loans, but increasingly, their ability to get a job or rent a place is damaged.

By preventing interest rates from doubling on subsidized Stafford Loans, our political leaders will help keep college affordable at a time when education couldn't be more necessary. Ask Sen. Chuck Grassley and Sen. tom Harkin to join Obama in calling on the rest of Congress to act now. Time is running out.

Richard Williams
Iowa Public Interest Research Group

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