In another example of the federal government playing politics and not doing real work, Congress fails to reach an agreement to extend the current rates on federal student loans. This blunder in Washington will send rates on subsidized federal Stafford loans from 3.4 percent to 6.8 percent, which can hit individual students in the pocket by as much as $2,600.
According to according to Washingtonpost.com:
“Federal law has set the rate for new subsidized Stafford loans at 6.8 percent, up from 3.4 percent. The subsidy means that these loans, for undergraduates with demonstrated financial need, do not accrue interest while the students are in school. It is estimated that the rate hike would add about $1,000 in interest over the life of a loan for many borrowers.”
So how does this affect the individual student? While anytime rates on any loan double you can expect to pay significantly more. Here’s the way it breaks down according to CNBC:
“Not all federal student loans are impacted. Only rates on new, subsidized federal Stafford loans doubled from 3.4 percent to 6.8 percent on July 1. Rates on existing subsidized Stafford loans will remain at 3.4 percent. Rates on new and existing unsubsidized Stafford loans will remain at 6.8 percent. Rates on federal PLUS loans will stay the same as well, at 7.9 percent… and while “the doubling of the interest rate may sound dramatic, but it does not double the loan payments. Most of the loan payment goes to pay down the principal balance of the loan. On a 10-year repayment term, the monthly payment will increase by only about one-sixth, says Mark Kantrowitz, publisher of Edvisors.com, a network of college financial planning and scholarship websites.
Whether the increase doubling of the rates to lead to doubling of payments or not, this underscores an underlying problem in this country: the devaluation of education as an investment tool to compete in an ever growing global economy. These sentiments are echoed by Sen. Bernard Sanders (I-Vt.) as reported by CNBC:
“Sanders said that to compete in the global marketplace, American youth must obtain a college education. Given the rising cost of higher education, though, Sanders said it’s become more difficult for students to afford college. Therefore, he said availability of a low interest rate loan is essential for the education of the low and middle classes.
‘It must be a priority that we do our best to see this generation get the best education they can. That’s not only good for the young people, it’s important for the economy of this country,’ Sanders told Squawk on the Street, contending, ‘we should stabilize rates at 3.4 percent for the next several years while we come up with a longer-term plan.'”
As we stumble to find our way out of the biggest economic downturns since the Great Depression, the federal government must realize that business, unlike politics, is not about playing games and posturing.
Life is simple, you get what you put in. Imagine the leading tech company saying they’re going to significantly cut back their research and development and forgo their competitive edge?
You’d think that the already college-educated representatives on Capitol Hill would already have this figured out this concept, but apparently not.