My Rachel Maddow side is about to come out…
You may have heard in the past couple days that Congress recently passed a bill to prevent student loan rates from doubling 3.4 to 6.8 percent. How “noble” of them.
What you HAVEN”T probably heard is that as part of this bill, students have now LOST the ability to defer the interest on their loans while still in school, and have LOST the 6-month grace period after they graduate to start paying on their loans. This is a big deal.
The bill Congress passed supposedly will cost them “an estimated $6 billion for one year.” However, they will rake in an additional $18 billion over the next decade from students who now will be required to pay on interest while in school, and no longer have a 6-month grace period. I am no math genius, but I’m pretty sure Congress is coming out on top in this deal, and the average American student is getting the shaft. Think about it. Congress is foregoing $6 billion in revenue over 1-year by keeping the rates lower, yet they are changing provisions in the law that will require students to pay $18 billion more than before over the next 10 years. 18 divided by 10, is 1.8. So, Congress will easily make back their $6 billion in a little under four years, leaving them an additional six years to take in additional $12 billion that they would not have otherwise collected. Bottom line, Congress makes out well in the end.
If this all seems “off message”, and against the typical “talking point” of Congress, it’s because it is. All we ever hear about is how “the cost of tuition is going up”, “higher education is unaffordable”, “student loan debt is such a problem in this country”, and that we must do something to stop it. Every politician, on both sides of the aisle, spouts the same rhetoric. And yet, a deal is made, a one-year TEMPORARY deal, that will keep interest rates lower, but require students to begin paying sooner. This is a deal that looks good in a headline: “Congress prevents student loan rates from doubling!“, but one that actually hurts students financially right now. Instead of more STUDENT debt, students will now have to take on more high interest CREDIT CARD debt in order to live AND begin paying off their loan interest. In short, while the bill prevents students from paying more loan interest in the long term (at least for the next year), it forces them to come up with more money NOW, thus increasing their financial burden in the present at a time when most students have the least amount of money available to them.
I, like many, believe this is just another example of a larger problem. The fact that more and more average, everyday Americans are forced into paying for the privilege of the 1% maintain their current obscene wealth, is a problem. GOD FORBID we increase the marginal tax rate on upper income earners, even by only 3.5%!!! They’re the “job creators”. Right, because the first thing that people with a lot of money want to do is spend it on hiring people and paying benefits. In addition to not being a mathematician, I’m also not an economist, but I do understand that the last resort of a business owner or entrepreneur is to hire MORE people. This costs money, and is only in response to an increase in demand. However, if there is no demand because no one has money to spend on their products because they are too busy paying off STUDENT LOAN INTEREST, then there is no reason to hire more workers. Thus, the cycle of unemployment and debt continues. Get the picture?
Here are the details of the deal as reported by the Chicago Tribune – http://www.chicagotribune.com/business/breaking/chi-no-more-grace-period-on-student-loans-20120628,0,4384922.story