The Student Loan Crisis: Rate Hike Looms on July 1

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Student loan debt
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If the looming student loan crisis were a movie, the title might be something like "Fiscal Cliff, part II: Summer Break Edition." As a recap, here's the basic story: On July 1, interest rates on federally subsidized Stafford student loans are set to double, going from 3.4 percent to 6.8 percent. This rate change would impact an estimated 7 million college students, making college educations more expensive at a time when student loan debt is already crippling the finances of millions of workers.

Much like the fiscal cliff crisis, this year's march toward higher student loan interest rates has been slow and inexorable, a churning machine of bureaucratic incompetence that millions of Americans are dreading but feel powerless to stop. And, like the earlier fiscal cliff crisis, the justifications and soft-pedaling have already commenced. Sen. Tom Harkin (D-Iowa), chairman of the Senate House, Education, Labor and Pensions committee, one group that could conceivably head off this crisis, has suggested that we will probably go off the student loan cliff, noting that legislators "probably can't get anything done this week." Meanwhile, Tennessee Senator Lamar Alexander (R) has volunteered that it would be "pretty easy" to reset student loan interest rates after they go up.

Of course, as sequestration demonstrated, undoing an economic crisis is easier said than done.

It's not as if there aren't any plans on the table: Congress and the president have both proposed linking student loan interest rates to the interest rates on 10-year Treasury notes. Congress' plan would place caps on rates, so that subsidized loans couldn't go above 8.5 percent and unsubsidized loans couldn't go above 10.5 percent. Unfortunately, the congressional plan would also allow rates to fluctuate, which means that a student's interest payments would rise or fall, depending on the Treasury rate.

President Obama's proposal offered fixed rates but did not propose caps, which means that students would always pay the same rate, but that rate might be really high. On the other hand, the president's plan would limit loan debt repayments to 10 percent of a borrower's income, and would retire student loan debt after a borrower has made payments for 20 years.

While the crisis is coming to a head right now, its impacts have been building for years -- and extend far beyond the four years of college. As The New York Times reported earlier this year, student loan debt slows economic growth as college graduates struggling to pay off their loans are often unable to buy cars, buy homes, or otherwise engage the economy.

And then, of course, there's the anxiety that comes with owing lots of money in a sluggish economy. According to a recent study by the Urban Institute, 20 percent of all adults aged 20 and older carry some form of student loan debt, and 57 percent of them are worried about how they're going to pay it off. Put another way, over 10 percent of all adults are worried about their student loan debt.

This problem is especially hard on low earners: 72 percent of people making less than $25,000 per year say that they are worried about their ability to repay. By comparison, only 36 percent of those bringing home more than $100,000 report having the same worries. In context, it's hardly surprising that American Student Assistance, a nonprofit that helps students with their loans, recently made a horror film about the looming loan terror.

As I've written in the past, there are numerous ways to keep your student loan debt down, but if you're facing serious debt now, the big question is how to pay. With that in mind, here's a round-up of some of our favorite ways to cut your student loan payments.

Escape Your Student Loan Debt



Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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Frank and Barbar

Poor college educated individuals who\'s interest rates are going up. If you can\'t afford to repay your debt, do not take the debt on. Just like the sub prime melt down. if you can not afford the payments, do not take on the debt. Even better is to pay for school yourself.

June 27 2013 at 1:25 PM Report abuse rate up rate down Reply
photoguywm

Americas would not recognize Evil unless it came down the middle of the street wearing a
black hat and a six gun......There are those who want to hold our hand while they force us
to walk into poverty of mind, spirit and bank accounts. They are the promoters of Agenda 21
and the New World Order that President Bush spoke so enthusiastically about years ago while
you were sleeping......If you desire poverty sheeple.....sit and do nothing about it.......

June 27 2013 at 1:22 PM Report abuse +1 rate up rate down Reply
jonesje1

The question is: why are corporations like J.P. Morgan Chase (Chase Bank) getting money from the Federal Reserve at essentially zero interest and Republicans in the House of Representatives in Washington want to raise student loan rates to all time highs? Here we have one of the richest and most profitable corporations in the world getting free money, while college students are being charged record high rates. I guess there is no question who has the most money to use to influence Congress with their lobbying to get laws that benefit them instead of the people of this country (hint: it's J.P. Morgan Chase and others).

What happened to government by the people, for the people, and of the people? Oh yes, the folks doing the lobbying have taken that out of the Declaration of Independence, while we weren't looking.

Section 2 of the Constitution states "The House of Representatives shall be composed of Members chosen every second Year by the People of the several States". It does not state that those Representatives will represent those people who elected them -- and, today, most of them do not represent those people. Instead, they represent the people who give them the money to get re-elected.

This will not change until the entire election financing system is completely changed.

June 27 2013 at 10:42 AM Report abuse +1 rate up rate down Reply
1 reply to jonesje1's comment
h.hughjardon

So how would you change it?

June 27 2013 at 12:10 PM Report abuse -3 rate up rate down Reply
2 replies to h.hughjardon's comment
mrspelosi

Somey dear. Me and President Obama do not like you posting remarks about us like that darling

June 27 2013 at 3:14 PM Report abuse +2 rate up rate down
h.hughjardon

Somey you are such a dumbass.

June 27 2013 at 3:26 PM Report abuse +2 rate up rate down
dssmalik

Some of the best universities are not in the United States. For a much lower cost, you can get a better education going overseas. This way, the American students won't have student debt and will be able to take a job at a lower starting pay to compete with the foreign workers that will be coming here on the H1 Visa plan currently in the immigration bill.

June 27 2013 at 10:40 AM Report abuse -2 rate up rate down Reply
dssmalik

We need to start addressing the cost of tuition. Why are other industrialized countries able to educate their people at a fraction of what it costs to educate a student in this country? We need to remember that these students are our future, we can't count on foreign workers, that will be coming here with the immigration bill's H1 Visa plan, taking the jobs at lower pay because their countries figured out how to educate their people at a reasonable cost.

June 27 2013 at 10:34 AM Report abuse -1 rate up rate down Reply
1 reply to dssmalik's comment
jdykbpl45

Blame the left wing education system.

June 27 2013 at 11:28 AM Report abuse +1 rate up rate down Reply
2 replies to jdykbpl45's comment
sam54ct

Really, are you that out of touch with reality that you would make such a foolish comment. It has zip to do with Liberal or Conservative values, in fact in was Ike who started the Student Loan Program, with the hope of allowing students of all income levels to receive a qualaity education. Why, most foreign counteis do not charge for college, and he recognized that if we continued to only educate the children of the wealthy, we would fall behind those Nations. In fact, the Bush " no student left behind" program only encouraged educators to teach the test, lest the school lose Federal aid, thus a failure of a program.

June 27 2013 at 12:15 PM Report abuse rate up rate down
h.hughjardon

Federal government shouldn't be funding education. Leave it to states, districts, municipalities.

Too many are hooked on the crack cocaine that is federal money.

June 27 2013 at 3:29 PM Report abuse -1 rate up rate down
nklswrth

The student loans for college ediucations are our kids introduction to indentured servitude to the US Government and big banking, We to get them good and saturated with student loan debt to begin thier lives used to making payments for a college education that many never complete, or benefit from That way our kids can work at meaningless jobs, happily, knowing that in 40 years they will have thier student loans paid off and they will then be able to afford a new home.

June 27 2013 at 9:02 AM Report abuse rate up rate down Reply
h.hughjardon

Better question...why is tuition so damned high?

June 27 2013 at 8:37 AM Report abuse -1 rate up rate down Reply
h.hughjardon

Why on earth would a thinking person rack up tens of thousands worth of student loans for a $25k job?

June 27 2013 at 8:37 AM Report abuse +1 rate up rate down Reply