The Independent Investor: Higher Education Just Got More Expensive

More than 7 million students and their families depend on Stafford Loans, a federally subsidized loans program, to help them get through college. Barring an eleventh hour compromise, it looks like the interest rates on those loans will double costing new students $1,000 more to fund their educations.

 

The initiative to raise interest rates on these student loans from 3.4 to 6.8 percent was spawned by the GOP-controlled House and passed July 1. Those politicians, who have continued to pursue their bankrupt austerity agenda, argue that, at most, the increase will cost new students $20 extra per month. Given that the vast majority of these same officials make well over $700,000 per year, I can understand why they don't think this should be such a big deal to you and me.

 

Or maybe they feel that since total student debt is now over $1 trillion, another $1,000 or so won't matter. Its peanuts, they argue, for millions of American families in the grand scheme of things. Peanuts to them, but our children's education debt has now surpassed both credit card and auto loan debt, ranking it as the second-largest type of consumer debt after mortgage loans. In the last 13 years alone, the average amount of student loan debt has increased from $17,000 to $27,250 — a 58 percent increase. Tell me another outlay that has jumped that much in so short a time period?

 

Long-time readers of this column know how much I value education of all kinds. Ask yourself how doubling rates on student loans furthers the aspirations and future hopes we have for a better America? Those responsible for this legislation would be quick to answer that this spending cut helps balance the budget, reduce the deficit and therefore puts the country on a sounder financial footing.

 

I believe that is an extremely short-sighted approach to what could be the single most important investment this country can make. Our children are our future. The ability to afford a higher education is a far more important priority than spending billions more on immigration control or the drug war or the dozens of other programs that remain ideologically sacrosanct from these austerity cuts.

 

Unfortunately, my hope that the Democrats in the Senate would be able to overturn this piece of legislation, at least temporarily, was dashed on Wednesday when all 46 Republicans and some Democrat Senators opposed a roll-back. There is still time to come to a compromise, but time is running out. The new legislation will not affect those students already enrolled in college but new students enrolling in September of this year will be.

 

Personally, I liked Massachusetts Senator Elizabeth Warren's initiative the best. In the first bill she has authored since her election, Senator Warren would tie the interest rate on Stafford loans to the rate banks receive from the Federal Reserve Bank. That would lower the student loan rate from as high as 6.8 percent to 0.75 percent, saving our students thousands in interest payments.

 

It is a strange world indeed when the rates that are charged to our banks by the Federal government are considered appropriate, while doubling the rates on student (who are, in essence, America's future), is somehow deemed just and fair.

 

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.