The United States Senate finally stepped up to ensure that student loan rates would not double.
There have been weeks of back and forth, but now Senators says they will tie student loan rates to the federal funds rate, which means that in the short-run the lowest student loan rates will be 3.86 percent, up slightly from 3.4 percent.
The bad news is that these loan rates may rise up to a rate of 8.25 percent, depending on prevailing interest rates. All other loan rates, including those for graduate student, for Parent PLUS loans, and others, will rise as well.
It may seem a victory that student loan rates don’t rise much higher than they were in June.
The connection of rates to the federal funds rate, however, connects the notion of supporting student to the oscillations of the economy.
When I graduated from college in 1974, interest rates hovered between 9 and 10 percent. The student loan interest rate was 2 percent. Why? My cohort was no more or less brilliant than any other. We were part of our nation’s plan for its future, which should be the case for today’s young people.
Slap in face
Shouldn’t our students get as close to the same deal that banks and others get?
Allowing student loan interest rates to fluctuate, to the detriment of students in an environment when rates are certain to go up is to slap our students in the face.
President Obama says he wants more students to graduate from community college or four-year institutions; we need more graduate and professional students in the science, technology, engineering, and mathematics (STEM) programs.
It seems hypocritical to articulate these needs and then to undercut the means to meet them.
There are more than one 1 trillion dollars outstanding in student loan obligations. The average student graduates with $27,000 in debt. Since nearly half of all students graduate with no debt at all, this means that the average debt for those who borrow is closer to $40,000.
The Senate bill passed 80-18 with some Democrats rejecting it because of its flaws. Others, like the progressive Senator Elizabeth Warren (D-Mass.), elected as a financial whiz and people’s advocate, chose to go with the one-year “okey-doke” rather than dig her heels in for the long run fight.
In some ways, Warren is right. The finger in the dike approach saves students this year, and so it is better than nothing. When, though, is better than nothing simply not good enough. Stay tuned. The vote on reauthorization of the Higher Education Act will happen next year. Are students waiting and watching? What about parents? Is there a political lobby to turn this mess around?
Julianne Malveaux is a Washington, D.C.-based economist and writer. She is President Emerita of Bennett College for Women in Greensboro, N.C.