Student loan interest rates have taken center stage in the latest partisan political debate. In response to the economic crisis, the federal government reduced the interest rate for Stafford Loans from 3.4 percent to 6.8 percent. But that was only temporary. Now Democrats are arguing that the lower rate should be extended. After initial resistance, Republicans agree but are battling with Democrats over how to pay for it.
It’s good for elected officials in Washington to relieve the debt many students are facing. But all this haggling over interest rates misses the real problem that students and their families are facing.
The real issue is the cost of education.
The cost of higher education has skyrocketed over the years. The amount of money states have dedicated to higher education has dwindled. Going back only 10 years, we see that states are spending dramatically less on higher education even while enrollment continues to increase. Tuition hikes represent an attempt by schools to make up the difference. This burdens students with a higher percentage of the cost of education and, in turn, forces them to take out more debt.
It’s no surprise that student loan debt has surpassed $1 trillion and is now the highest single source of debt in this country. While stagnating wages have dogged college graduates for years, the equation began to break down in 2009 en masse with the skyrocketing unemployment and underemployment caused by the financial meltdown.
Most of us believe that we need a skilled, highly educated workforce if we want our nation to compete globally and the economy to get back on its feet. In that regard, we are certainly at a precarious point. Keeping the student loan interest rate down represents nothing more than a band-aid on a severed limb. Job prospects are grim for graduating students, making many of them wonder if higher education is worth the cost – a lower interest rate won’t dig graduates out from under skyrocketing tuition and growing debt. Congress should be moving on real solutions – and that means investing in young people and our workforce and investing in public education.