As if the student loan debt crisis weren’t bad enough for borrowers already, it looks like the Obama Administration may fail to pass new legislation aimed to stopping the massive student loan rate increase that went into effect on July 1st. If the Administration is unable to stop the Stafford loan interest rate increase, then low and medium-income households will be forced to pay 6.8% interest on new Stafford loans, compared to the 3.4% interest that they’ve been paying for the last two years.
The deal that President Obama’s administration is attempting to pass calls for Government-funded student loan interest rates to be pegged at the same interest rate that the government pays to borrow loans over a 10-year period, which is both substantially lower than the 6.8% interest new Stafford borrowers will be forced to pay this Fall, but also even less than the previous 3.4% interest rate that they were paying previously!
However, those short-term savings will end up with long-term losses for most borrowers, as interest rates on 10-year Treasury notes rise when the economy gets better, meaning that graduate students and parents borrowing on behalf of their undergraduate children will end up paying more for their loans as early as 2015, with undergraduate borrowers taking out loans for themselves starting to pay more as early as 2016.
On the bright side (depending on how you look at it), the Government is actually making some money on these student loans, and is projected to generate $184 BILLION in profit off the new loans offered to college students and their families between 2013 and 2023 – this according to forecasts from the nonpartisan Congressional Budget Office. The CBO thinks Obama’s new deal would generate an extra $715 million in profit for the Education Department, when compared to existing law due to student loan interest rates increasing over the long term.
Commentary
Now, I don’t know how you feel about this whole thing – but it probably depends on whether or not you want Government to get bigger and whether or not you or someone that you care about needs a student loan in the near future. Personally, I’m not so sure that this compromise will end up being a good deal for either the tax payer, or those seeking students loans themselves.
First off, I think we’ve got enough student loan debt out there already, especially now that we’ve far surpassed the level of credit card debt, inflated a student loan debt bubble surpassing the $1 TRILLION mark, and I’m honestly not sure that we need the Government to continue pushing cheap, easy money to get more people signing up to weigh themselves down with tens of thousands of dollars in student loan debt just so they can get a piece of paper which says they’re qualified to work in an office environment.
Elizabeth Warren says that government-generated profits off of student loan borrowing is “morally wrong” and “obscene”, but I don’t agree with her at all. She’s definitely against this student loan rate hike, but I think that it’s a great thing that the Government will make $51 BILLION in profits off of student loan borrowers in 2013. Isn’t the Government’s job, after all, to look out for the interest of taxpayers?
Is there any better way to accomplish this than by making money on the taxes that we’ve given them? Why shouldn’t tax payers be protected against federal student loan borrowers, who have been proven to be far more prone to squandering the money they’re taking out in student loans when compared to private borrowers?
Should the Government not make money on loans that are oftentimes being used to pay for virtually worthless credentials that over-qualify these individuals for available jobs, ensuring that they’ll appear in the unemployment line for years to come? Don’t we want the Government to be hedging their bet on these loans, protecting us tax payers from having to fund additional assistance programs for people who don’t successfully make it out of this system?
Let’s Get Real Here
Is the real problem that Government is making too much money off student loan debt, that student loan rates are going up, or is the real issue that we’ve made student loan debt far too accessible by offering money at rates that are way too low (especially compared to private, free-market student loan rates)?
Has it been a good idea to trap people into the fantasy dream that if they bury themselves in debt and earn a degree in whatever subject they want, they’ll be able to find a great job that will allow them to pay off that debt in just a few years’ time? How well has this been working out for us lately?
Do you know any recent college graduates? How many of them have great jobs in a related field? And how many are working at Starbucks? How well has this system worked for ordinary Americans in the past 5-10 years?
Have you noticed how often the news media – even the liberal media – has reported on the student loans crisis, on the inability of recent graduates to find jobs, and especially jobs worthy of the investment that they’ve made in education costs?
Consider, just for a moment, that our system is truly broken, that it isn’t working at all, and that we need to find a new way forward.
Ask yourself if there are, perhaps, other avenues better than the traditional college system for creating a well-trained, highly-skilled workforce that can compete in the global economy?
I’d argue that there are…
Questions Worth Asking
There are far more important questions than “Are student loan interest rates going up?”, “What interest rate should we be charging student loan borrowers?” or “How much profit should the Government make off of student loans?”, but virtually no one with a voice in the media is bring them up.
Why aren’t we having a discussion about these questions instead:
- Why are we still sending so many people to college to study things like the Humanities, Arts & Literature, pseudo-“Sciences” and other subjects that don’t provide real-world job skills and applicable training?
- How many more people do we need to saddle with $100,000 debt before we realize that it makes it impossible for them to buy a car, buy a house, or spend money on consumer goods – behaviors which have powered the American economy for decades?
- Will future college graduates be able to find jobs that pay high enough salaries to let them escape from the student loan trap, or will they be stuck paying off student loan debt for the rest of their lives?
Why isn’t anyone in the Government or the media asking these far more important questions, especially when these are the real problem faced by young Americans across the country, and our economy as a whole.
Isn’t anyone worried that we’ve become a nation of under-employed, pseudo-education dilettantes, with all sorts of basic knowledge in a variety of subjects, but no experience or expertise that can be applied to real world applications?
Isn’t anyone afraid that the qualify of life in America is plummeting as we squander educational opportunities, at the same time that the rest of the world (even China and India) are figuring out how to make education work?
Solving The Real Problem
Politicians, Bureaucrats, Colleges & University employees, and especially ordinary Americans need to wake up to the fact that not all schools, and especially not all degree programs, are created equal.
Dear reader, please consider this extremely simple fact:
If you’re taking out tens of thousands of dollars in student loan debt, then you’d better get serious about choosing an appropriate degree (look to those in the fields of science, math and engineering), or your chances of becoming yet another debt-saddled unemployment line shuffler grow exponentially by the day.
Avoid The Interest Rate Increase
Let’s face the facts – college really isn’t for everyone. Not everyone needs a degree!
Don’t be duped by the media, your parents and the general narrative that claims college is the only route to earning power, rewarding careers and reliable employment prospects. It’s simply not true! Advertising and marketing agencies have been employed to convince you that this is the case, and millions of dollars are spent on reinforcing this narrative each year, but it’s totally bogus.
There are thousands of trade jobs that don’t require a college degree, but do offer excellent real-world work experience. Plumbers, electricians, carpenters and other related industries won’t ever go away, no matter how globalized our economy becomes. These jobs can’t be outsourced, they don’t require $100,000 in student loan debt, and they actually offer pretty good salaries, as well as relatively good long-term job security and valuable life skills.
If you don’t want to sit in an office typing on a computer all day, then college just might not be your best bet. Perhaps this student loan rates increase will save you from making a disastrous decision by encouraging you to think outside the box, and look for a different route to success. Don’t look the gift horse in the mouth here – consider this an opportunity to review your plans.
Think carefully about what you really want to do before agreeing to take on massive amounts of student loan debt. Figure out if the numbers make sense, if you’ll be able to pay off that debt, and if it’ll really be worth the investment in time, energy and especially money.
Remember that you can always go back to school later in life, but that you can never get rid of your student loan debt without paying it off in full – not even by filing bankruptcy – the banks and their Politician friends have made sure of that!
By: Tim Marshall
Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt in 2011, where he offers advice, tips and tricks for paying off student loans as quickly and affordably as possible.