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Salem – Unless Congress acts, on July 1, the interest rate for 121,570 student loan borrowers in Oregon will double from 3.4 percent to 6.8 percent. According to an issue brief released today by OSPIRG, the rate increase would hike the cost of Oregon students’ loans by over $110 million. That translates into a $906 increase in debt per student, per loan.
At issue is the interest rate for subsidized Stafford student loans. The low 3.4 percent rate was set to expire in 2012, but Congress and the President temporarily extended it for one more year. Now the interest rate is set to double to 6.8 percent on July 1 unless Congress acts to extend the current low rate.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up to buy a home or start a family. Just last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in Oregon currently has $25,497 in student debt.
Subsidized Stafford student loans are offered to the neediest students, who get hit particularly hard by high levels of debt. Sixty-eight percent of all subsidized student loan borrowers are from families with incomes of less than $50,000.
In addition to the direct impact on students, the nation’s economic recovery as a whole could be hastened by easing the burden of high student loan debt. Despite the number of unemployed workers looking for jobs right now, the lack of an educated workforce remains a persistent problem for our country, making it even harder to meet the economy’s needs. In Oregon, 67 percent of all jobs that are both high wage and in-demand require a bachelor’s degree or higher.
“Keeping the interest rate low on student loans will make college more accessible and send an urgent signal to students, workers, and the unemployed to get the postsecondary training needed to adapt to new economic realities,” said Celeste Meiffren, Consumer and Taxpayer Advocate with OSPIRG.
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate a whopping $50 billion in revenue for the federal government this year.
The revenue generated by the student loan program comes at the expense of student borrowers, who go deeper into debt as a result. An increase in the student loan interest rate would allow the federal government to profit even further while adding to students’ debt load.
“Students and families consider higher education to be an investment in the future,” explained Meiffren. “Yet Congress seems to be working against that investment - and unless they act now with the future of students in mind, then it’s about to get even worse.”
Several comprehensive student loan reform plans are pending in Washington, DC, but none have won support from student and consumer groups. The U.S. House passed a bill two weeks ago that increases interest rates even more in the long-term than if the rate is allowed to double. The President has proposed a plan that keeps rates at 3.4 percent in the near term, only to allow them to increase above 6.8 percent later. In the Senate, Sens. Tom Harkin (D-IA) and Jack Reed (D-RI) have proposed a short-term solution that OSPIRG supports, which is a two-year extension of the low 3.4 percent rate that is paid for by closing corporate tax loopholes.
Download OSPIRG’s issue brief, “Student Loan Debt in Oregon” here: http://ospirg.org/reports/orp/issue-brief-student-loan-debt-oregon
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