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Obama’s plan for student loan interest rate reform is no “bright spot”

DailyKos.com on May 4, 2013

Your student debt could skyrocket.

In Obama’s 2014 budget request to Congress, President Obama included a new plan for student loan interest rate reform, which will link the student loan interest rates to the market rate. In his plan, these rates will also be tied to the10-year U.S. Treasury note rate.

The problem is that the interest rates have no cap, which means that when the market rates soar, so do student loan interest rates.

 

And as the economy improves, the market rates are certain to grow, which means that student debt will also. Americans already owe over 1 trillion dollars in student debt, so it’s scary to think of what skyrocketing debt might look like for the country as a whole. In fact,Americans now owe more on their student loans than they do on their credit cards, and since the early 1980s, tuition and fees have increased by 538 percent — that’s almost twice as fast as health care costs.

In short, Americans can’t afford more debt.

Here’s what Kati Haycock had to say about this in a recent piece in The Huffington Post:

“The president’s budget released this week could have weighed in on the side of students and called this practice of burdening tomorrow’s young families with even more debt to help pay for today’s government expenditures what it is — insane. Instead, the president offered a plan that would avoid a scheduled increase in interest rates this July but would allow rates to rise without limit over the long-term. That is no solution for students. It is a political stance that might win the president a few budget hawk friends, but will do little in the long run to help students better afford the post-secondary education they need and that the country needs them to have.A typical low-income family today must pay out-of-pocket or finance an average of 72 percent of its income a year to afford just one year of college at a four-year public or private institution. These students and their families cannot bear additional costs. The president’s proposal, although it might lower interest rates very slightly in the first year, will ultimately allow those rates to rise uncontrollably.”

But the story does not end here.  The National Journal wrote an informative piece on the student loan debate in Congress. The good news is that both Democrats and Republicans agree that federal student loan interest rates can’t double from 3.4 percent to 6.8 percent on July 1. The bad news is Congress hasn’t coalesced around one plan to prevent the increase – and some have even called the president’s plan for student loan interest rate reform “a bright spot.”Plenty of other groups have also raised their voices, warning about the dangers of the president’s plan. In fact, the National Collegiate Leadership Conference, Our Time, Rock the Vote, Roosevelt Institute Campus Network, Student Debt Crisis, U.S. PIRG, and Young Invincibles came out with a joint statement to express their disappointment:

“While the President’s budget keeps rates low in the near term, we’re disappointed that it risks sky-high interest rates in the long term. The structure of the proposal switches student loan interest rates from a fixed rate to a rate that varies with the market, allowing students to take advantage of temporarily low rates, but offering no protection for students when rates inevitably begin to climb. Without a cap, this proposal falls far short of the comprehensive reform to student loans that we need.”

With little time left (just about two months), Americans have started telling Congress to include a cap for student loan interest rates.You can add your voice here. Members of Congress need to know that you and your fellow Americans can’t afford this new plan…especially not with a student loan interest rate that is tied to a volatile and unpredictable market rate.Cross-Posted at IAmNotALoan.org.

ORIGINALLY POSTED TO I AM NOT A LOAN ON SAT MAY 04, 2013 AT 09:47 AM PDT.

ALSO REPUBLISHED BY YOUTH KOS 2.0.