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Student loan interest rates set to rise July 1

By Masao Suzuki |
June 27, 2013
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San José, CA - On July 1, interest rates for federally subsidized student loans to pay for college are set to double, rising from 3.4% to 6.8%. This will affect almost 10 million students who will be taking out new loans this coming year. Over the life of their loans, this rise in interest rates could add about $4000 to the cost of college for a student entering college in the fall of 2013.

College student debt has risen dramatically in the last few years and now totals about $1.1 trillion dollars. Three years ago student loans passed credit card balances as the largest form of consumer (non-mortgage) debt. While interest rates on student loans tend to be much lower than the interest rates on credit cards, they cannot be reduced through bankruptcy.

Student debt has gone up as financial aid in the form of grants has failed to keep up the soaring tuition at colleges. Over the last 30 years college tuition has been increasing at three times the overall rate of inflation. Public colleges and universities have seen some of the largest percentage increases in tuition as state governments have cut back on educational spending, especially in the last five years with the deep recession and financial crisis.

These increases in student debt have weighed the most heavily on working class students and African American, Chicano and other oppressed nationality students, who have fewer financial resources to pay for college. Many have to work more hours while in college, which makes it harder to do well and makes it take longer to graduate.

College graduates, and especially college students who don’t get their degrees, are more and more weighed down by student loan debt. With the terrible job market for recent college graduates, with half either out of work or working jobs that don’t require a college degree, more and more college students are moving back home after finishing school and are putting off buying a car, a home, or getting married because of the need to pay off the heavy debt load.

One of the ironies of student loans is that the federal government can actually profit off of student loans. With U.S. government borrowing costs averaging close to 2%, loaning money to students at a subsidized rate of 3.4% or even more, the unsubsidized rate of 6.8% can make money for the federal government. For example, in the last fiscal year (2012), the federal government spending on higher education was actually negative $19 billion, meaning that the government took in more than they spent.

But with all the pressure for austerity at the federal level, from raising the payroll tax to cutting spending - including spending on education - allowing the interest rate to rise on federal student loans would help to cut the budget deficit (which is already falling rapidly) even more. This is just another way that working class and oppressed nationalities are being hit the hardest by today’s government budget cuts and another way that our opportunities tomorrow are becoming more and more limited.

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