Saturday, April 21, 2012

College affordability and student loan in election year politics

First, from the LA Times:
President Obama used his weekly video address to launch what will be a weeklong push on the issue of college affordability, pressing lawmakers to act to prevent a sharp increase in interest rates for student loans.

The president noted that at a time of economic distress, a college degree has never been more important. But "it's also never been more expensive."
It has never been more expensive is true.  But, I am not sure whether it has never been more important.  Anyway, that debate aside, the immediacy is in the fact that
In 2006, the rate on all types of Stafford loans was 6.8 percent. But in 2007, a Democratic-controlled Congress passed a bill that cut the rate on subsidized Stafford loans for undergrads in half over four years.
The rate dropped to 6 percent in 2008-09, to 5.6 percent the next year, then to 4.5 percent and to 3.4 percent for the 2011-12 school year. Under that act, the rate jumps back to 6.8 percent starting July 1.
"It's not surprising the 3.4 percent rate expired in an election year," says Mark Kantrowitz, publisher of "Normally Congress passes legislation with a five- or 10-year window. The four-year window was timed perfectly for an election."
In other words, Democrats knew Republicans would have a hard time letting a rate increase take effect on the eve of an election.
When one can get 30-year mortgages for 4%, 
letting the rate increase now, when jobs are harder to find and schools are cutting other types of financial aid, would be a "triple whammy" on students.An argument could be made that at a time when banks are paying almost nothing on deposits and mortgages can be had for 4 percent, a rate of 6.8 percent is too high for all student borrowers.
As Judith Scott-Clayton noted a few weeks ago, 
With a bachelor’s degree, even $40,000 may be a manageable level of debt over the long term. But for those who are unemployed – including 9.1 percent of the 20- to 24-year-old college graduate labor force and 20.4 percent of their peers with no college degree, according to a recent report – even much smaller amounts may be unmanageable in the short term.
The worst one could do is to go to graduate school to get non-professional and non-terminal degrees--these will merely add to the debt.  Yet, students continue to flock to graduate school, especially in the humanities and the social sciences!

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