Under a House-passed plan, that would have meant a student loan rate of 4.3 percent, rising to as much as 8.5 percent.
“It’s very clear students would be worse off under that proposal than simply allowing interest rates to double” because rates “would be lower initially but rise as interest rates rise,” said Pauline Abernathy, vice president of the Institute for College Access & Success, a non-profit research and advocacy group based in Oakland, California.
Exploding Debt
Over the past decade, there’s been an explosion of student loan debt. It now totals almost $1.2 trillion, with 85 percent consisting of government-backed loans taken out by students and their parents. The rest are made by private lenders like banks or Sallie Mae, the largest U.S. education-finance company.
The share of 25-year-old Americans with student debt increased to 43 percent last year from 25 percent in 2003, according to the Federal Reserve Bank of New York. During that nine-year period, the average education-loan balance of people in that age group increased 91 percent, to $20,326 from $10,649, according to the New York Fed.
With so much outstanding student debt, borrowers are having trouble contributing to the U.S. economy in other ways.
It has become harder for young people, especially those between 25 and 30, to secure other types of credit, including home mortgages, according to a February report on household debt and credit by the New York Fed.
Economic Drag
Economists warn that what is owed in student loans may rival home-mortgage indebtedness as a drag on U.S. growth.
“The difficulties borrowers face when trying to manage cash flow may have a broader impact on the economy and society,” Rohit Chopra, student-loan ombudsman of the Consumer Financial Protection Board, told the Senate Banking Committee on June 25. “When young workers are putting large portions of their income toward student loan payment payments, they’re less able to stash away cash for that first down payment.”