Loan debt continues to plague college students

Sen. Elizabeth Warren (D-Mass.) believes college should be more affordable for students in America, and she’s not alone. In fact, at least 250,000 people agree with her. In 2013, Warren created a petition as part of her first-ever Senate bill to set the student loan interest rate to the level offered to big banks by the Federal Reserve. 

The petition, which sparked support of more than 250,000 MoveOn.org members - a community of more than 8 million Americans focusing on progressive issues was rejected by Senate Republicans this past March - just a week after its launch. Senators voted 46-53 against Warren’s amendment to the Republican budget resolution.

Warren’s amendment would have allowed people with college loan debt to refinance at a 3.9 percent interest rate from the 2013-2014 academic year, through a budget policy that would have required millionaires to pay a 30 percent effective federal tax rate - an increase from the 24.7 percent rate in 2014. The interest rate of student loans can vary greatly, and is determined by the year in which the loan is first borrowed. The largest student loan program is the Federal Direct Loan, which offers loans that are subsidized and unsubsidized. 

“The interest rates have changed over the years, but currently the Direct Loans are offered with fixed rates,” said Financial Aid Office Director, Susan Gutierrez. “For undergraduate or credential students borrowing for the 2014-2015 school year, the interest rate on their Direct Loan is fixed at 4.66 percent.”

However, the year-by-year fluctuation in interest rates is projected to produce quite the financial turnover. In a recent interview on “The Daily Show with John Stewart”, Warren explained that the student loans taken out in years 2007-2012 alone are on target to produce $66 billion in profit for the United States government. In the same interview, Stewart pointed out that big banks in America have been taking out loans from the Federal Reserve for years at a rate next to zero percent.

“This shows how much more corporations and especially big banks are in focus of politics,” said political science student Ralf Esperschidt. “Politicians shouldn’t forget that education is the capital of tomorrow. Fair interest rates on student loans would encourage more young people to attend college. Education is key and student loans, which are hard to pay back, are a burden for students who strive for success.”

    In total, the U.S. student loan debt now exceeds $1 trillion, making it the second largest debt in American households, following mortgages. 

For many students who enter college, an undergraduate degree is a ticket to a secure financial future with the idea of being able to land more competitive employment positions and in turn make a larger salary than those in the job market without a degree. However, a Federal Reserve study conducted shortly after the petition’s launch revealed there are more disparities in this generation of young adults than just those with or without a college degree. A new divergence of borrowers and non-borrowers of student loans is emerging, and its existence is making waves in the U.S. economy. The study found for the first time in 10 years young workers with college debt are less likely to have mortgages or car loans.

“I think most students taking student loans in the United States have the feeling that they’re not in the hearts and minds of this congress,” said Nicolas Carjuzaa, a business student with a Bachelor’s degree from Sonoma State University and Paris West University, Nanterre La Defere. “When I graduated from a European university, I signed a check for a grand total of 238€ ($280 USD) and received my degree. A friend of mine here financed his entire degree with loans, and for the last few years he’s been paying only interest and hasn’t breached his principal [loan].”

    At a university where over half the student population receives some kind of  financial aid - be it scholarship, fee waivers, grants, or students loans - being able to pay for education is a prominent agenda item for many students and families.

    “Approximately 64 percent of SSU students receive some sort of financial aid,” said Gutierrez. “The basic cost of a CSU education is still one of the best bargains in the country. Unfortunately, the living expenses associated with students going to their first-choice CSU might mean that students and their parents take on considerable educational debt. Students and their families have to make the decision of what level of educational loan debt is an acceptable investment for them.”

Whether a reformed version of Warren’s petition will resurface in years to come is up to speculation. In the meantime, U.S. undergraduate students continue to pay more on loans for education than big financial institutions do in order to finance businesses.