College students hit with higher interest rates of govt. loans
By the time Rebecca and Jason Snider pay off Jason's graduate school loans, they will be 65 years old.
The Sugar Grove couple accepts full responsibility for the $207,000 in federal Graduate Direct PLUS loans Jason, 40, racked up while putting himself through 3½ years of graduate school to become a physical therapist.
What's harder to accept is why they must pay 8 percent interest on these loans, given that rates for mortgage or car loans are between zero and 5 percent and the Federal Reserve practically loans money to banks for free.
Their $1,385 monthly school loan payment put such a financial burden on the couple - who have four daughters ages 2 to 9 and help care for an elderly parent - that they were forced to short-sell their house and squeeze into a two-bedroom rental townhouse.
Jason often puts in 12-hour days while Rebecca started an office cleaning business and does home day care for income.
"I just get angry because I don't feel like there's any way for me to lower this payment and let my family breathe a little without working three jobs," Rebecca said. "I don't want a free handout. I want tools to better our lives."
The Sniders' story is not unique, as people around the country struggle, or fail, to repay their student loans - in part, because of the relatively high interest rates they're being charged.
More than 37 million college graduates and dropouts currently owe more than $1 trillion in outstanding student loans, according to the Consumer Financial Protection Bureau. The student loan default rate - both in Illinois and across the U.S. - has risen sharply in the past few years, prompting some economists to predict this "education bubble" will be the next to burst, potentially dragging the economy down with it.
The student loan crisis, as some refer to it, is in the spotlight now because on July 1 the interest rate on federal undergraduate Stafford loans is scheduled to double from 3.4 to 6.8 percent. President Barack Obama toured colleges last week and pushed Congress to act to keep the interest rates from rising, then threatened to veto a House bill that did just that after Republicans tacked on cuts to a public health program to pay for it.
The Sniders don't want to default. They're aggressively searching for ways to lower their interest rate but so far don't see any good options. They can't refinance their $207,000 debt or declare bankruptcy, and they don't like the deferment or short-term, payment-lowering programs because Rebecca says they're bad long-term choices - lengthening the repayment period and ultimately making the loans more costly.
As an added blow, the family could only write off $2,500 of the $14,000 they paid in interest last year on their income taxes, Rebecca said.
"Your hands are so tied, and you can't do anything about it," she said. "If I could get a lower percentage rate, I'd accept that. I am not someone who wants a free pass. But give me some tools. We can't put money away for retirement because of this debt ... and (their long work days) are not healthy for the family structure."
Political issue
For government college loans, the interest rates are fixed but vary based on several factors, including the type of loan, when it was issued, and whether it's subsidized.
On most federal student loans, the interest rates range from 3.4 to 9 percent, with most in the 6 to 8 percent range, according to the U.S. Department of Education.
Congress sets the interest rates, and is the only government body that can change them, a department spokeswoman said.
"Federal loans are a pretty good deal, given that they are unsecured credit," said Mark Kantrowitz, publisher of FinAid.org. "Private student loans have variable rates that will probably increase by 5 or 6 percentage points or more in a few years. Private student loans are made only to borrowers with very good credit, while federal education loans are available to most borrowers, even borrowers with a thin or nonexistent credit history."
Obama, while visiting several college campuses last week to talk about the student debt crisis, said he and Michelle just paid off their college loans eight years ago (but did not specify what types of loans or the interest rate).
Democratic U.S. Sen. Dick Durbin said college debt is a multipronged problem, linked to the skyrocketing cost of a college education and the decrease in available grants. Because of this, students are forced to borrow large amounts of money to go to college, and with a weak job market, repaying their loans becomes a struggle. The Associated Press reported last week that half of all college graduates are unemployed or underemployed.
Durbin, who considers this "debt bomb" a top priority, also wants to crack down on certain for-profit colleges he says put students in deep debt for useless degrees.
He's currently sponsoring a Fairness for Struggling Students Act - a bill that would treat privately issued student loans in bankruptcy the same way as other types of private debt. Now, money owed on student loans can't be discharged by declaring bankruptcy.
Durbin sympathizes with families like the Sniders, and agrees the interest rate on government loans is too high.
Yet, the cost of keeping the interest rates frozen on subsidized Stafford loans could run the federal government $5.9 billion a year, prompting the battle in Congress over how that would be paid.
"When it comes to these government-based loans that are guaranteed loans, the interest rate should be accommodating to young students and young families," Durbin said. "The magnitude of the debt now is crushing for so many families. They thought they were getting an education to liberate themselves, instead they will get a loan that will enslave them for decades."
Meanwhile, the Sniders are doing what they have to do to keep their family financially afloat. Rebecca says Jason was lucky to be accepted into the highly selective graduate program at Midwestern University, a private school in Downers Grove. By earning an advanced degree, he was able to boost his salary by roughly $20,000 a year and do a job he loves. However, the financial pressure they're now under is so overwhelming, the couple have considered moving away from their families to a place with a lower cost of living, or taking jobs in impoverished rural areas for which the government will absolve their student debt.
"(Jason) worked so hard to get through school, and it doesn't get any easier after that," Rebecca said.