Congress must act on student loans now

TO THE EDITOR:

Congress’s failure to pass a measure preventing the doubling of rates on Stafford subsidized loans before the July 4 recess expired is an embarrassment. Gridlock preventing passage of a measure is an understandable part of the democratic process. But to have bipartisan support for the lower rates and still fail to pass a measure that would help invest in our youth’s and thus our country’s future is deeply disappointing — and troubling.

Even more disturbing, though, is the fact that the disagreement in Congress only draws attention to one of many issues with student loans in the United States today.

Some perspective is necessary. Student loans are only a part of the larger problem with higher education in the United States. The terrifying trajectory of rising costs is the main one, a problem that, until solved, will make student loan rate increases a moot point by comparison.

But resolving student loan interest rates will be an important step in mitigating the burden of higher education costs on my generation.

Student loans are unique. Auto, home, personal and credit card loans, for example, can be discharged through bankruptcy. Student loans, however, cannot be discharged — except by proving undue hardship, which is exceedingly difficult.

Further, the federal government has the authority to collect by garnishing wages to oblivion and taking Social Security checks and tax refunds. The very loans that are supposed to be an investment in our country’s future are the loans for which the default terms are most severe.

If Congress plans to retroactively reduce the rates on federal subsidized loans, it should also consider reducing the harsh penalties that are peculiar to student loans.

Compounding these disproportionate consequences is the rate of default on student loans. Though the Department of Education reports cohort default rates for federal loans are 9.1 percent two years out of college and 13.1 percent three years out (already unacceptable figures), this figure omits the likely far higher rates over the lifetime of a loan.

Even worse, these figures are independent of the default rate on private loans, which comprise about 10 percent of all student loans originated each year and typically have far higher rates reaching up to 12 percent.

Keep in mind these rates are against the backdrop of today’s historically low interest rates, which are likely to exacerbate private loans’ interest rates and thus increase default rates.

Student loan rates are also completely arbitrary. The 3.4- and 6.8-percent rates are benchmarks against absolutely nothing, because interest rates are typically based off of perceived risk, and students are usually individuals for whom risk is hard to assess because of a lack of information.

But this also means Congress has an opportunity. By charging little to no interest on student loans, Congress can invest in America’s future while not breaking the bank and continuing to teach financial responsibility. All this can be done while also staying true to American ideals of personal responsibility and individualism.

While working at UNC’s Office of Scholarships and Student Aid, I have found that even amidst the rapidly rising costs of higher education, the uncertain job prospects of today’s anemic economy and acute underemployment of college graduates, my peers are full of optimism and hope about their futures.

It’s time we gave them a reason to be hopeful.

John Son ’15
Business administration
Political science