By Saba Long
It is no wonder people – particularly younger folks — are increasingly disillusioned by politics. Every day, it seems, gridlock in Washington is affecting our way of life.
We have lost high school buddies, cousins and college classmates to the War on Terror, all while witnessing a long-overdue national debate on the health and wellness of military soldiers – namely “Don’t Ask, Don’t Tell,” the realities of Post Traumatic Stress Disorder and sexual abuse.
Captivated by the possibilities of a President Barack Obama, youth across the country have been given a cold dose of reality that change doesn’t come in one term, and even then it may be more subdued than we expected.
Millenials and Generation Z are coming of age in a recession having to watch well-to-do family friends and childhood neighbors adapt to the realities of foreclosures and bankruptcies. For those being raised in poor and middle-income families or for the recent college graduate unable to find work in their career field, college is a way out – a chance to hit refresh on life’s screen.
Yet, between 2000 and 2011, public university tuition increased 42 percent; for private institutions, the increase was 31 percent. And it’s becoming quite clear the trajectory of this trend is continuing to skyrocket.
Oftentimes, these students close the gap by borrowing money through programs like the Federal Stafford Loan and the PLUS loan.
On July 1, 2013 an already expensive investment is set to cause a bit more heartburn for upcoming college students when the subsidized Stafford Loan interest rate is set to double — from 3.4 percent to 6.8 percent. The bipartisan College Cost Reduction and Access Act to reduce the rate for four years to 3.4 percent was successful in 2007. During the 2012 Presidential election, it was extended for one year. PLUS loans have a current interest rate of 7.9 percent are not part of the existing act.
In true Washington fashion, there are multiple proposals on the table to prevent the rate hike and no one is willing to compromise to get the necessary votes.
According to the White House’s Office of Management and Budget, under the President’s proposal, the rate on new federal student loans would be set each year based on the U.S. Treasury’s actual cost of borrowing, and it would remain fixed for the life of the loan so that borrowers would have certainty about the rates they would pay. There is also a clause to ensure loan payments are no more than 10 percent of the borrower’s discretionary income.
House Republicans introduced a bill that would also link student loan interest rates to the Treasury’s plus 2.5 and 4.5 percent for Stafford and PLUS loans, respectfully. The rate would also vary from year to year, with an 8.5 percent cap for Stafford and a 7.7 percent cap for PLUS loans. The House passed the bill with a mostly party-line vote of 221 to 198.
Senate Republicans introduced a bill, which ultimately failed, to also link the interest rates to the 10-year Treasury rate but adding a 3 percent-fixed rate.
A vote to extend the existing 3.4 percent rate to two years failed 51-46 – again a party-line decision.
Another plan of Senate Democrats would start by using the three-month Treasury rate – significantly lower than the 10-year rate – and add an administrative costs to be determined by the Secretary of Education. The plan also includes caps for Stafford and PLUS loans.
The money generated from federal student loans is a deficit reduction opportunity but Washington cannot come to a consensus on priorities. After reviewing these plans, there are two fundamental policy questions to consider.
Where do we compromise on providing an affordable education to middle-class borrowers while continuing to chip away at the national deficit? How involved should politicians, and the Secretary of Education, be in the setting up of student loan interest rates?
This is textbook partisan gridlock that will ultimately impact the everyday person trying to achieve the American dream.