At $1 trillion, there’s more student debt in the United States than there is credit card debt.
Nationally, 16.2 percent of consumers carry student debt with an average balance of $24,810. New Mexicans carry slightly less, as 14.6 percent have student loans averaging $23,090, according to a Federal Reserve Bank of New York report. Nearly half of University of New Mexico students have student loans.
In July, the interest rate on student loans is poised to double – from 3.4 percent to 6.8 percent – unless Congress re-ups on last year’s extension of the 3.4 percent interest rate set in 2007 for Stafford loans.
Several proposals are floating around Washington, D.C., to address the problem, not just put a Band-Aid on it.
On Thursday, the House of Representatives passed a bill that would prevent the rate from doubling and tie the interest rates for new student loans to 10-year Treasury note yields and set minimum caps on the rates.
Opposition is expected in the Senate, where a proposal backed by Senate Majority Leader Harry Reid, D-Nev., would freeze subsidized Stafford loan rates for two years while Congress figures out a long-term fix. Opposition also is expected from the White House because the House plan allows the rates to fluctuate over the repayment period.
In his 2014 budget request, President Barack Obama proposed tieing the rates to 10-year Treasury notes, but with an important difference – the rates would stay the same for the life of the loan. Supporters of the idea, like UNM’s associate vice president for enrollment management, Terry Babbitt, say that would give students a more predictable debt picture.
Other proposals include using a variable interest rate capped at 8.5 percent or temporarily setting interest rates at the same rate banks pay when they borrow from the government, currently at 0.75 percent.
In any case, a long-term fix is in order.
Students need to know what they are on the hook for in paying off the loans, which essentially have no collateral except the hope that the student will graduate, get a job and make enough money to pay it off.
With a trillion dollars at stake and millions of students affected, those in college don’t need another short-term extension that merely kicks the can down the road again.
Whatever path Congress decides to take, it should be one that does not strangle the nation’s economy and does not keep students guessing about what their monthly payments will be long after they’re finished with school.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.