Being smart about college loans
The premise is simple enough. Keep interest rates manageable so students can borrow money to go to college, improve their lives and be able to pay it back without going into the poor house.
The debate is raging now because interest rates on subsidized Stafford Loans will double from 3.4 percent to 6.8 percent if Congress doesn’t act by July 1 to keep the lower rates intact.
Both President Obama and his likely GOP challenger in the November election, Mitt Romney, support action to keep rates lower. And so do we. Right now, as per usual in Washington, the bill that would keep the rates lower is embroiled in partisan politics on how to pay for the program — $5.9 billion a year. This is one more example where Congress should set aside its proclivity to muddy up the waters and do what’s right.
“When it comes to these government-based loans that are guaranteed loans, the interest rate should be accommodating to young students and young families,” said Illinois’ senior Sen. Dick Durbin, a Springfield Democrat. “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.”
While we want college to be affordable and accessible to all — Stafford loans are geared toward low- to moderate-income students and families — we do take issue with those students who borrow so much that paying it back becomes crushing.
Elgin Community College is being proactive by requiring every student who applies for a loan to sit down with a financial aid counselor and do a budget. That’s an idea that should be required by every college for every student. The crisis really is that great.
According to a story by staff writer Jamie Sotonoff in Monday’s Daily Herald, more than 37 million college graduates and dropouts currently owe more than $1 trillion in outstanding student loans as reported by the Consumer Financial Protection Bureau. In many cases, rates are much too high considering the economy and the cost of borrowing for other major purchases such as houses and cars.
Sotonoff tells the story of a Sugar Grove family paying off $207,000 in graduate school loans at 8 percent interest. Given that you can get a mortgage or a car loan for anywhere between zero and 5 percent, the cost to borrow to go to school is high.
But given that the increase in salary for the graduate degree earned by our Sugar Grove physical therapist is $20,000, it’s clear that it will take more than decade to get even close to a positive return on his investment. And that’s if all the salary went to paying off that loan.
Many factors go into a decision to borrow, but all college students and their families should plan ahead so they can enjoy not only their college years but the many years after graduation as well.