A Tale of Two Interest Rates
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UPDATED: May 9, 2012
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It was best of times, it was the worst of times, it was the age of freedom, it was the age of restriction, it was the epoch of the 99 percent, it was the epoch of the 1 percent, it was the season of debt, it was the season of wealth, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all at the mercy of our ourselves, we were all at the mercy of our politicians — in short, the period is like many other periods, and while the people have found their voice, their leaders aren’t listening.
Some of us may feel trapped in these heavy dichotomies, as we sit idle and helpless, watching our country undergo violent shifts. From foreign wars and international crises, to domestic movements and economic dips, Americans have been hanging on for dear life as they rip through the turbulent waters of the “What’s to come….”
Here on the domestic front, there are huge current events in the student loan industry that, while “current,” are not “temporary.” These present happenings will have a huge impact on future, current, and even former students. College-goers and parents alike are watching Capitol Hill with nail-biting anxiety as the two primary parties bicker like school children while teeter-tottering the financial futures of millions of Americans in the process.
The Existing Interest Rate
Federally subsidized Stafford loans are a type of government-backed college financing that grants students the opportunity to fund their higher education. Stafford loans require no credit checks, no payments until graduation, and students have the potential to borrow up to $20,500 per year. Naturally these loans are hot commodities in the world of college financing.
But, in the past, these federal student loan rates were relatively high, resting at a fixed 6.8 percent. In 2007, however, lawmakers remedied that by slashing those rates in half, resulting in a low and extremely affordable 3.4 percent interest rate.
The legislation that passed came with an expiration date though: July 1, 2012.
Now that day is fast approaching, and the radiant 3.4 percent rate is in jeopardy of fading away—a day that couldn’t have come a worse time.
The Potential Interest Rate
Earlier this year, the media blew up with reports that the nation’s student loan debt overtook the country’s total credit card debt. Weighing in at over $1 trillion, our growing student loan debt bomb set loose major red alarms in the eyes and ears of experts and analysts.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” said FICO’s Chief Analytics Officer Dr. Andrew Jennings in a news release. “A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults. Our survey results underscore the ongoing challenges that millions of Americans face as they try to cope with their debt during these uncertain times.”
Here we have a nation of young individuals pursuing higher education—racking up one of the largest tabs in the country’s accounting book—only to find themselves without a means to repay that debt.
Take the law field, for instance. Historically one of the highest paying professions is now in a major slump.
According to Washing University law professor Brian Tamanaha, American law schools produce 45,000 new graduates each year. But job recruiters expect only 25,000 openings annually through 2018, reported Forbes.
That means by 2018, there will be 140,000 unemployed, fully qualified lawyers meandering around the work force. That’s 140,000 people who will use student loans for college, only to find themselves without a job. And lawyers are something our society will always have a demand for, recession or not. Now imagine how other non-recession-proof industries and experts are faring.
Even at 3.4 percent interest, students today cannot pay back their student loans because, simply, they don’t have the means to.
Gallup University, a for-profit institution that produces extensive research surveys, reported that the unemployment rate for young adults in April 2012 was 13.6 percent. While that number is shockingly high, it’s nowhere near the discouraging amount of underemployed young adults. A full 32 percent of 18- to 29-year-olds in the U.S. workforce are reported to be underemployed.
Couple those rates with the fact that the average student loan holder borrows over $25,000, and this metastasizing crisis suddenly needs no further explanation. We’re currently in a lot of trouble, and that sizeable amount of trouble is currently present even before our federal rates spring back up to 6.8 percent.
And the Voiceless Cry Out to Deaf Ears
This Tale of Two Interest Rates is a discouragement, particularly in the wake of the huge social movements that have recently taken place.
Occupy Wall Street was Generation Y’s version of the Berkley Riots—except the OWS movement had such momentum that it didn’t stay confined to a single college campus or city. It spread like wildfire across the nation, and even hopped international borders, as activists in European and Middle Eastern nations began taking to the streets in Guy Fawkes masks.
Occupiers claimed to have no demands, but their purpose was apparent: they wanted financial equality and financial freedom. Largely a battle between the 99 percent (lower- and middle-class) and the 1 percent (the upper-class), OWS activists occupied, protested, and invoked an army of disgruntled everyday citizens who felt they had been wronged by the wealthy and by the political leaders of their country.
Their voice was heard, they made primetime in the media spotlights, but then they slowly died out.
While Occupiers still exist and the movement is still technically ongoing, their “pizzazz” has been seemingly lost, as evidenced by this current student loan interest rate crisis ahead of us.
Despite the fact that Occupy Student Debt supporters (a branch of OWS that focuses exclusively on the student loan crisis), students, graduates, and parents across the nation are screaming for politicians to act, our Republican and Democrat leaders refuse.
Instead, lawmakers are dancing around, pointing fingers at one another like tattling siblings, all the while avoiding the true problem at hand: the lives of our teenagers, our young adults, and the parents of our college-educated.
Politicians need to set their partisan agendas aside, take a look at the looming student loan debt bomb hovering above all 50 of our states, and make a decision in favor of the people they represent.
Until then, we better prepare our young citizens—and, in turn, our economy as a whole—for the walk up those creaking stairs to the financial guillotine.