Since our economic downturn, college graduates have suffered tremendously, experiencing fewer and fewer job opportunities. Nearly half of college graduates are unemployed or underemployed, and debt from student loans is piling up — totaling more than $1 trillion. We need to address these problems with real solutions that give America’s next generation sustainable opportunities for future employment.
An Associated Press analysis of government data reports that half of college graduates are either jobless or are underemployed. All of this has occurred despite policies — most notably the stimulus — enacted in the name of solving this economic crisis. These policies have led to soaring deficits and debt as far as the eye can see.
The good news is that Congress can do something about this. We can stop using student loans as a piggy bank and instead develop reforms that solve the system’s problems and develop policies that encourage future generations to get the education they need at affordable rates.
The interest rate on subsidized Stafford loans is currently set at 3.4 percent. The scheduled increase to 6.8 percent in July could cost the average borrower $1,000 over the life of his or her loan.
Even at the current rate, many graduates are defaulting on payments, which can be attributed to the fact that half of recent college graduates are struggling to find work in the ongoing stagnant recovery. According to Equifax, student loan delinquencies involving payments more than three months late rose 14.6 percent in 2011 from the year before.
Raising student loan rates in a fragile economy would be detrimental. In April, the House passed H.R. 4628, the Interest Rate Reduction Act, which will freeze the 3.4 percent interest rate on subsidized Stafford loans to undergraduate students for one year. While I believe we need a permanent and comprehensive solution, I do believe this is a good first step.
There is a bigger problem, however — as rates changed, so did the level of government involvement in student loans. In 1992, the Direct Loan Program was created, supposedly to compete against private lenders’ Family Federal Education Loan (FFEL) Program. Even though schools and universities preferred the FFEL program 3-to-1, the Obama administration eliminated it as part of its healthcare law. It was not only a massive takeover of our healthcare system, but also a permanent government takeover of the private student loan industry.
In the Washington world of budget gimmicks, the high cost of this healthcare law was paid off the backs of our young graduates, through interest payments on their subsidized Stafford loans. I believe that this was the wrong solution. But what really gets me mad is they did not do this in order to help students, but to pay for President Obama’s healthcare bill. The government is charging students a 6.8 percent interest rate for a loan that only costs 2.8 percent to originate, and using the profit to fund yet another entitlement program.
With a successful education infrastructure, we can create a strong foundation that will ensure the future success of our nation’s economy. But first, we need to stop giving Washington bureaucrats control over our education and instead turn control back over to the people who know how to best implement a quality education — the students, parents, teachers, administrators and others at the center of our education system. A high-quality education is critical for our country’s future, which is why the stakes are so high.
Roe is a member of the House Education and the Workforce Committee.