If you’re one of President Obama’s fifteen million Twitter followers, you may have seen his #dontdoublemyrates tweets lately. The controversy stems from the College Cost Reduction and Access Act of 2007, which, among other things, reduced the fixed interest rates on newly originated subsidized Stafford loans for undergraduate students only, from 6.8% in 2007 down a sliding scale until they hit 3.4% in the 2011-2012 school year. These cuts were only for subsidized Stafford loans. All Stafford loan rates are set to go back to 6.8% as of July 1, 2012. The President is trying to extend the rate cuts, which cost the government a staggering $6 billion per year.
Are you confused yet? Basically, what this means is that the only people who are affected by the rate change are those who initiated new subsidized Stafford loans from July 1, 2008 through June 30, 2012—those people who are borrowing for undergraduate degrees currently. And what is a subsidized Stafford loan? It’s a federal loan which doesn’t begin accumulating interest until you graduate, and receiving one requires demonstrating financial need. Around two-thirds of students receiving a subsidized Stafford loan come from a family with an annual adjusted gross income of less than $50,000.
Moving the subsidized Stafford rates back to 6.8% means that we’re balancing our budget on the backs of the poorest Americans… again. And while some are arguing that, in the long run, students need more information, not a reduction in interest, how many 18-year-olds do you know who are going to take the time to study the cost-benefit analysis of the management courses within their marketing major?
In March, Congressman Hansen Clark from Michigan introduced the Student Loan Forgiveness Act, which would not only permanently lower the rate of Stafford loans to 3.4%, but also caps repayment amounts at 10% of the borrower’s discretionary income. The SLFA also allows for forgiveness of outstanding loan balances after 10 years of making regular payments. This bill has been referred to committee, but again, the primary issue will more than likely be making other budget cuts to pay for it. (An important thing to note about the SLFA is that, like the 2007 rate cuts, it would only apply to new loans, not existing ones.)
One easy way to pay for these cuts? Enact the Buffett rule, which is projected to add $36 billion in annual tax revenues to the federal budget. The premise of the Buffett rule is simple: millionaires should pay their fair share in taxes. In 2009, over 23,000 households with $1 million or more in income paid less than 15% in taxes. Around 1500 of those paid no tax at all. Remedying this situation is “class warfare”, but raising the cost of a college education for students whose families make less than $50,000 isn’t?
If you want to support the Student Loan Forgiveness Act, contact your representative.