I notice that one of the stated goals of the newly Democratic Congress is to reduce the interest rates of student loans. I’m questioning whether this is a particularly good idea. Specifically, is there a significant group of people kept from higher education because they can’t afford to borrow $20K* at 7-8% (current federal student loan rates are 6.8%), but who would be able to do so at 3.5-4%, and is this the most effective way of enabling higher education for people who might not otherwise have the means?
For reference, the difference in monthly payments is approximately $40 (from $242 to $202/mo) over a standard 10-year payoff.
I have only my own student loans for reference, but I graduated with around $27K in debt. Part of it was government subsidized at a variable rate (then quite low), and part of it was not, but at the same rate, and part of it was through the school at 5%. I paid off the 5% loans as quickly as I could and consolidated the rest into a 3.125% loan. I’m paying that one off as slowly as possible because I can make more than that in a CD. It seems to me that the government subsidized loan rates should not be put to use enriching my investment portfolio, and I fear that that’s what would happen if we decided to subsidize student loan rates well below market prices.
Can you convince me that subsidizing loan rates is a better way of encouraging higher education than, say, subsidizing community or state colleges with the same money?
The average undergraduate student loan balance for graduating seniors is $19,282
I see your point, but on the other hand, the fact that you obtained a college education, are now building up your savings, and aren’t having to live in a windowless basement room eating nothing but instant noodles is also advantageous for the government.
One of the reasons we have government subsidize things is that the return on investment can take so many different forms. The government doesn’t have to restrict itself to thinking only about maximizing monetary profits in order to decide which investments are best. High returns on investment can also come in the form of better public health, higher levels of education and earning power, higher rates of private saving, more economic growth generated by consumer spending, etc. etc. etc.
Well, the individual loan has the advantage of being portable and directly targeted to the individual expense. Individual student needs money, individual student applies for loan, individual student pays back loan to government. If we were going to direct that loan money into, say, scholarship subsidies at institutions instead, wouldn’t we have to get into bureaucratic hassles about annual variations in enrollment size, average need of student, etc. etc., in order to know how much money to give each institution?
That’s a fair point. However, in my case, I would have gone to college with higher interest rates. But now I’d be paying back my loans rather than letting them sit and putting money elsewhere.
I’d agree with you, except that those bureaucratic hassles already exist, because we already give money to schools like that. We could change the degree without creating massive new bureaucracies (which isn’t to say that we would).
Did we need an increase? The Republicans did raise the student loan rates while simultaneously lowering the tax rates on the upper income folks. It hardly seems appropriate to nail the people who just graduated and then give a break to the folks who have an established, reliable source of (significant) income. In fact, it seems downright bass ackwards and hateful.
Also, you’re still having to pay these loans back and the government will still be making money off of you (and me!) - I don’t see how that contributes toward your portfolio. Now if the government forgave my student loans, and I was able to invest the $250 a month I was saving into something, then I suppose you could make that argument.
Also I’d just like to point out that $40 a month over 10 years winds up being close to $5000. Thats the government taking $5000 from people who are just starting out in life, while giving tax cuts to people who again, have an established, significant source of income.
Cry me a river, spaz. Students take loans in order to go to increase their earning potential. Repayment of the loans allows others to do the same thing. You decry tax cuts for the rich, but student loans are simply welfare for the well-off.
Right, I think if I was well-off, I wouldn’t need any effing loans! When I founf out how much my loan this year would cost me in the long run, I about had a stroke. I also dount that my BA in Sociology is really going to put me in with the catagory of “well-off”. Why can’t they make school affordable in the first place?
At what point did I say anything negative about repayment? If you read what I posted, my main problem came from them raising the loan rates to begin with. Also, I’m all for tax cuts for the rich, provided the poor and middle-class aren’t the ones to pick up the slack thats left - which is exactly what happened here.
And no - government student loans are not welfare for the well-off. Have you ever applied for one? The qualifications to get one have limits on your parents’ income. People who get student loans obviously aren’t well off - seeing as how they need a frickin loan to pay for my college in the first place.
Perhaps I should say “the middle class.” Middle class people take advantage of student loans much more than the poor. And, in general, people who go to college are much better off than people who do not, giving them the ability to pay off the loans.
I doubt that Congress raised interest rates on student loans in response to cutting taxes for the “wealthy.” I don’t think student loan funds are part of the general treasury. Revenue lost from tax cuts would not affect student loans at all.
Before this gets too off-track, student loan rates don’t have anything to do with tax cuts for the rich.
And I’m not opposed to helping reduce the cost of education. In general, I think it’s a good idea. I just think that subsidizing loans is a crappy way to do it that’s going to have a lot of unintended consequences.
It contributes to my portfolio because the student loan rates I have are well below current market rates. I can make more money in a savings account than I can by paying back my loans. In fact, if I’d foreseen this, I’d have taken out even more loans instead of using up all my savings on college costs. Now, in my case, the low rate is due to the lucky fact that I went to school during a period of extraordinarily low interest rates. They were market (or close to it) at the time. But if we all of a sudden force the rates down below market rates, this arbitrage game becomes viable for everyone who can get a student loan. I foresee a huge increase in student loan debt, with the government holding the bag for part of the cost.
Perhaps you should spend some time in a community college financial aid office, or atleast doing a little research before you make such ridiculous claims. Government loans are for low to low-middle income folks. I suggest you look here and here for starters. Notice one recurring them: “Must show financial need”. You keep demonstrating that you have absolutely no knowledge of what it actually takes to qualify for a government student loan.
Sure- My parents were middle class (I suppose that made me middle class even though they didn’t help one bit) - they made a combined $70,000/yr and it wasn’t until they had 3 children in college that I could actually qualify for help. It took all of my savings from the jobs I had held since 16 just to pay for community college alone.
No kidding people are able to pay them off - thats why the government gives them out. No one’s arguing for amnesty - they’re arguing for reducing the interest to what it was just 2 years ago before they were raised. I don’t see why this is such a travesty of justice for some people.
A little homework is in order, spaz. The Deficit Reduction Act merely changed the interest rate from a variable rate to a fixed rate. This is probably a good thing for students in light of rising interest rates.
According to the Dept. of Ed (http://www.ed.gov/students/college/repay/2006-changes.html) on July 1 of this year, the interest rate for new loans is a fixed 6.8%. Compared to variable rates (calculated as per the post of iamthewalrus) of 6.54% for in-school or deferred borrowers or 7.14% for out-of-school borrowers, this is not so bad.
When it was at 5.3% previously. Making it fixed = good, yes. Making it a full 1.5% above what it was = bad. Why not fix it at the current rate if you’re really trying to help these students?
What they’ve done is raised it to the rate of a car loan. Only this car costs $30-40000, compounds interest while you’re not paying it off in school (1-4yrs) and won’t be paid off for 10 years. This puts a significantly higher burden on someone just getting out of school, I can tell you from experience. Having it the way it was before was difficult, now they’re upping it, and with interest rates increased, and the span of time they’re increased over, it’ll compound the issue even further.
Given that we’ve now established that this was done as part of budget reconciliation - Do you think its appropriate to raise what people beginning a career pay, while reducing what those with significant incomes pay towards our government?
What you don’t seem to understand, spaz, is that the 5.3% rate was a variable rate. That rate was going up to 7.14% based on the formula. The GOP Congress that you rail against saved you money by fixing it at 6.8%. I’m not sure why they fixed at 6.8%, but they did and it’s giving you a lower interest rate than you otherwise would have had.
actually they didn’t. I consolidated and everything I have (federal) is fixed… one at 3.125% and the other at 5%
My points are that as difficult as it was for me starting out - imagine a low income student with no family to fall back on or move in with when starting out a new career making $25-$30k a year. Its a rough position to be in, and making it more difficult, while making the lives of others who had it easy already, easier, about makes my head asplode.