Student Loan Rates

by James Anderson and Matt Ryg

Student-Debt1

As economic concerns mount for us all, recent legislative action gives us reason to pause, reflect and then act.

Many of you are well aware that Congress made crucial decisions about student loan interest rates this summer. They first failed to reach a deal on rates for federally subsidized student loans by the preferred date of July 1, resulting in what would have been a 6.8% interest rate increase.

With time to act before the rate went into effect, the Senate approved a bipartisan plan that tied the Stafford loan rates to financial markets, putting students in a precarious double bind. With substantial bipartisan support, the House followed suit, passing the legislation July 31.

Some celebrated this as working across party lines for the benefit of the public. As reported in the New York Times, Rep. Luke Messer (R-IN) called it “a great victory for taxpayers, because taxpayers won’t be forced to subsidize student loan rates that are arbitrarily set by politicians,” adding that it proves “Washington can work.”

Yet, we worry that while working for some, Washington is not working for too many people, especially students. The latest legislation regarding student loans provides a case in point. While the loan rates might not be “arbitrarily set by politicians,” they are now subject to the arbitrary whims of speculative financial markets.

We question whether it is truly “a great victory for taxpayers” because students and taxpayers are (or at some point will be) one and the same. And students will now be individually subsidizing payment for “public” education in order to get the degrees necessary to attain jobs that benefit the common good.

When politicians pass the legislation tying Stafford loan interest rates to financial markets, it forces students who take out loans to indirectly subsidize the “too big to fail” financial institutions that engaged in the risky behavior that helped produce the unfavorable economic situation today, which supposedly makes these budget-tightening policies necessary.

Rolling Stone reporter Matt Taibbi recently said that the costs of university education “have been rising at roughly three times the rate of inflation over the last couple of decades, three times the rate of the consumer price index,” and this rise in cost that primarily benefits administrators is being subsidized by student debt via government loans that will now indirectly subsidize speculative finance.

Jenna Johnson quoted Sen. Elizabeth Warren (D-Mass.) in the Washington Post after the bill first passed the Senate, pointing out that those in congress who supported the deal assume that lowering interest rates on loans this year is all that matters, which is “the same thing credit card companies said when they sold zero-interest credit cards, and it’s the same thing subprime mortgage lenders said when they sold teaser-rate mortgages.” Warren added: “In all these cases, the bill comes due.”

The senator had previously proposed students pay the same rates that big financial institutions get through the Federal Reserve discount window, an appreciably lower 0.75%. Just prior to the last compromise being reached in the Senate, Warren introduced an amendment with Sen. Jack Reed to keep interest rates where they are now. Sen. Bernie Sanders proposed authorizing new rates for only two years.

But the bipartisan opinion prevailed, prompting Warren to call the legislation “obscene,” since it forces students into the role of revenue generators for the government (and indirectly for the multinational corporate and financial institutions coercively pressuring politicians).

Sadly, students now appear caught in an inescapable double-bind.

Should the economy improve – and many students hope that it will so standards of living increase along with prospects for meaningful work – then the rates they pay on their loans will likely rise. True, the bill lowers interest rates temporarily, but those rate will be hiked in a few years.

Adding further irony and insult to the situation, if the rates do substantially increase as predicted, a large segment of the new workforce will have further reduced purchasing power.  That will likely hurt the overall economy down the road – and place disproportionate burden on indebted students and graduates.

Granted there was compromise, the consequences of which could have been far worse. The Senate deal capped loans at 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for parents and students with loans through the PLUS program.

But is this compromise problematic?

“The problem with the compromise that the Obama administration and the Republicans struck over student loan rates is that it compromises students,” Valerie Strauss wrote for the Washington Post, answering our rhetorical question and candidly summing up the situation.

Lest we forget, students – graduate students in particular – are already struggling. Accelerating trends in educational policy intensify that struggle.

Interest rates on student loans have nearly quadrupled in the last decade.  They now total about $1 trillion dollars, exceeding the sum of all credit card debt.

Equally troubling is the larger situation we find ourselves in as these policies take effect.

According to the Project for Student Debt report from The Institute for College Access & Success, college seniors had an average student loan debt of $26,000 in 2011. We suspect many graduate students owe much more.

Indeed, escalating costs of tuition and fees make it all but impossible not to accumulate debt.

The Institutional Research and Studies Factbook for Southern Illinois University Carbondale found that resident tuition for graduate students has more than doubled in the last ten years, rising from $4,296 in the 2003-04 academic year to $9,004.80 in 2012-13. Graduate student tuition has increased more than 2.5 times in that period, going from $1,270.30 to $3,352.68.

For graduate assistants, this is tantamount to paying employment fees to work at the university. Those employment fees are about two months pay for many of us. If you have a fifty percent fall and spring semester GA position only, approximately 20 percent of your pay goes back to the university in fees.

These higher costs of education have consequences. Increasing tuition and fees – together with exorbitant debt and potentially volatile loan interest rates – amount to a covert form of privatization that imperils people and public education writ large.

The process degrades education as a public good. Learning becomes commodified, turning a fundamental human right into a mere market-driven product exacerbated by the corporatization of higher education.

These practices work to sever social bonds and reinforce reductive, top-down business-model approaches to education that negates participatory decision-making. Top-down control, profit-oriented policy and questionable “less is more” approaches to education impede critical inquiry while impoverishing us intellectually and economically.

Undeniably, commitment to quality public education still pervades our campus. But, the “less is more” mentality applied disproportionately with respect to graduate students poses a serious problem.

If we truly value education in our democracy – and democracy in our education – then clearly student loan interest rates should not exceed the rates that the big banks largely responsible for the protracted financial crisis now pay, and they should not be attached to precarious markets.  Further, tuition for public education should be free for all, or at least it should be based on a student’s ability to pay. And for goodness sake, freeze the always increasing fees.

These are issues we care deeply about. We are also serious about trying to make education affordable. In the same vein, we want to make working conditions just, just as we assume all of you do. Please join us in working to create a better university right now while planting the seeds of a better world for the future.

In solidarity,

James Anderson, Steward
College of Mass Communication and Media Arts
Matt Ryg, GAU President
Department of Philosophy

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