Advocacy group U.S. PIRG says it could cost students an extra $1,000 over the life of their loan if the interest rate on those loans goes up to 6.8% in July. In reality, it might be more: Some students wind up paying off their loans for upwards of 20 years, and that $1,000 is calculated based on the average one-year loan amount borrowers take out, which is $3,357. But the average bachelor’s degree recipient who graduates with debt graduates with $11,329 in subsidized Stafford loan debt.
The same drama played out last year before Congress, in the midst of an election, voted to extend the lower rates another year. Many expect the same thing to happen this year, but the budget the White House sent to Congress yesterday includes a new proposal: a variable interest rate that will be reset every year.Whichever way they decide, we hope Congress and the White House understand that students need more than just cheap debt; they need reasonable prices for higher ed programs that are sensibly geared toward the job market.Once upon a time, the government-subsidized student loan system was about putting college within reach of a wider array of Americans. But this model has gone sour, as colleges have raised prices to keep pace with federal aid. Universities increased tuition by 65 percent in the past ten years alone, meanwhile taking on debt to finance lavish new facilities. The number of administrators hired by higher ed institutions has increased 50 percent faster than the number of instructors since 2001.It’s hard to imagine that universities would have done this if they had been forced to compete with each other on price. Alas, abundant government loans ensured that the only competition that mattered to them was the quest to lure in students and their federally subsidized grants and loans.[Ball and chain image courtesy of Shutterstock]