Lawmaker Says Being Poor In College Is Fun, While Congress Catches Up On Student Loan Rate Issue
Last year, the average full-time, undergraduate student received $13,218 in student aid. Since the total bill mounted to $21,447 to study and live on campus at the average public university, that aid was a big help.
Of all that financial aid given out in the 2011-2012 school year, the federal government foot 73 percent ($173.8 billion) of it.
But the federal student loan industry is proving to be unsustainable, leaving students with mountains of debt by the time they graduate—$1 trillion collectively to be exact. The House Education and the Workforce committee continued its on-going on discussions on Wednesday to address ways institutions, states and leaders in Washington can help more students access an affordable, college degree.
"No one wants to see student loan interest rates increase, particularly as young people continue to struggle with high un- and underemployment," Rep. John Kline (R-Minn.) said as he introduced the hearing.
Currently, the Department of Education issues most federal loans with a fixed 6.8 percent interest rate. In 2007, Congress cut interest rates for subsidized Stafford loans to 3.4 percent for undergraduate students with greater financial need. Last school year, these lower rates hit 3.4 percent. But now, Congress is grappling with how to keep these low interest rates without the federal funding to support them.
The House Education and Workforce committee promised to use this time to work toward a long-term solution that better aligns interest rates with the free market, Kline said. "Today's hearing provides an opportunity to explore the merits of a market-based system. As many of you aware, such a system was previously in place from 1992-2005, and if it'd remain, interest rates on student loans would be less than 3 percent today."
This became the focus of the hearing rather than the July 1 deadline for doubling interest rates on subsidized student loans. The Congressional Republicans at the hearing expressed concern about interest rates while Congressional Democrats discussed more protections for borrowers.
The one exception was Rep. Scott DesJarlais (R-TN) who suggested that loans were making students lazy and disinclined to work.
“You’re poor in college, and that’s actually part of the fun of it,” DesJardins said, pointing out that he graduated from medical school in 1991 with more than $100,000 worth of loan debt.
DesJarlais' misguided view that being poor is fun aside, Congressional Republicans seemed to support a switch toward interest rates that vary with market conditions. One main proposal came from Jason Delisle of the New America Foundation, a non-partisan public policy institute.
His proposal is to peg student loan interest rates to those of 10-year Treasury bonds, plus 3 percentage points, to provide better terms for borrowers. He also called for an end to interest-rate caps and for increased restrictions on federal loan forgiveness.
If his plan were implemented today, the interest rate on all Stafford loans, subsidized or not, would be 4.5 percent. Delisle argued that while this is higher than the current 3.4 percent interest rate on subsidized loans, it's better for borrowers because it applies to all federal student loans, not just subsidized ones.
Congressional Democrats, including the committee's ranking member, Rep. George Miller, on the other hand, suggested they would favor additional loan counseling requirements.
Justin Draeger, the president and CEO for the National Association of Student Financial Aid Administrators, spoke, representing 3,000 colleges and universities who collectively serve 97 percent of federal student aid recipients in the country.
He talked about the holes in current federal loan policy, emphasizing the importance of financial literacy and flexibility to school financial aid counselors. He said that by law, financial aid offices are required to disclose certain information, but cannot go much beyond that in their advising. For example, if students are considered to be part-time, then there is less need for them to take out the maximum amount for a full-time student, but financial aid counselors cannot advise them to not overborrow.
The temporary reprieve for an increase in intrest rates on subsidized Stafford loans is set to expire this July. If no new legislation is set, rate will then double. With the nation’s student-loan debt reaching $1 trillion, student loan reform is critical.
“The number of people with federal student loans will soon exceed the number of people receiving social security or food stamps," Draeger said. "In other words, federal student loans could soon be the United States' largest federal assistance program. That puts added pressure on us to make sure we get these policies right.”
Amber Pace is a Policy and Research Intern with Campus Progress.
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