Adrian Yablin

Student loan debt has reached record highs of over $1 trillion, and it continues to grow. Each year, according to the National Center for Education Statistics (NCES), about 19.7 million high school students graduate and move on to a college education. Over two million of these students will graduate and move on into the world, finding careers. However, the average cost of the college education they have acquired is piling up. The cost of tuition for a four-year public school is around $12,000, while at a private school, the average cost is around $32,000. In 2010, the average student loan debt for a person pursuing higher education was $25,250, which is 5 percent higher than in 2009, according to a study by the Project for Student Debt.

Recently, debt in the U.S. has come to the forefront as a major economic problem — it was exacerbated by the recession in 2008. At RIT alone, over 75 percent of the students have accepted federal aid. For anyone who can’t pay for college out of pocket, this college path, and the debt that accompanies it, is unavoidable. However, in the face of potential increases in interest rates and proposed legislation, the student loan market may soon be undergoing a sea change.

A SECOND CHANCE

The government currently has no policies controlling student loan debt, unlike many other kinds of debt. Right now, the current bankruptcy laws do not forgive student loan debts; if a person files for bankruptcy, they are still required to pay off all of their student loans.

However, this may be changing soon: U.S. Representative Hansen Clarke (D-Mich.) proposed a bill that will cut student loan debt after 10 years. This Student Loan Forgiveness Act will forgive student debt of those who have paid 10 percent of their income towards their loans over a period of 10 years. It also caps the interest rate on federal student loans at 3.4 percent. In the interest of professions which are statistically lower paid — but are deemed to provide a public good — those who are pursuing careers in teaching, public service or practicing medicine in under-served areas may have their loans forgiven after only five years.

If this act is passed, students all across the country, including those from RIT, may be saved thousands of dollars of debt. According to the Huffington Post, the bill will forgive students for up to $45,520, equal to the cost of a four-year degree at an average public university. In an attempt to help this act pass, an online petition has been established; at the moment, the petition has over 870,000 signatures. Clarke has been encouraging students and all those affected by this bill to get involved.

RISING COSTS

Adding onto the current financial burden is the continuous inflation of tuition rates add to this financial burden. College tuition increases between six and nine percent annually, far greater than the dollar’s average inflation rate of three percent. Pairing this with a proposed increase in student loan interest rates, the price of education is rising faster than the value of the dollar would dictate. Current student loan interest rates are capped at 3.4 percent, but starting on July 1 this year, the interest rates on federally subsidized Stafford Loans are set to double from 3.4 to 6.8 percent. This will affect all college students nationwide who have these loans.

Senator Chuck Schumer (D-N.Y.) visited RIT recently to talk about a bill he proposed, which would lock the interest rate at 3.4 percent, preventing the increase. He was introduced by President Bill Destler, who spoke of how he too believes that college costs are getting too high.

At the presentation, Schumer explained how the bill will work and his reasons for backing the change. “When a student cannot afford a college they deserve to go to because the cost is too high, and they don’t have the back-up to go, they lose,” said Schumer. He promised to continue to press this matter forward until some change is made.

The current cap of 3.4 percent on interest rates was set up by Congress in 2007. Senator Jack Reed recently introduced a bill that would extend the cap for another year. If the interest rate is increased, it is expected that the average student who receives four years of subsidized Stafford Loans will have to pay an extra $3,798 more over a 10 year repayment term. According to Schumer’s web site, this would directly affect over 8,000 RIT students, who may have to resort to acquiring private loans instead.

A CHANGING MARKET

The private loan market has also been shifting recently, as JPMorgan Chase & Co. recently announced that it is pulling out of the student loan market. Representatives from the company stated that they will start to only extend student loans to customers with an existing financial relationship with Chase. The date for this change, according to a Tuesday, April 10 Huffington Post article, is July 1 — the same date that the federal loans would increase their rates. The article also states Chase is following the actions of the U.S. Bancorp, a Minneapolis-based bank which stopped accepting student loan applications from nonmembers in late March.

This change comes as the Consumer Financial Protection Bureau increases its scrutiny of private student loan lenders. According to a Department of Education study, the percentage of student loan borrowers who have defaulted on their loans by the second year of repayment them has doubled since the reported 8.8 percent in 2007. This increase in defaults means the student loan industry is more risky, but also more profitable.

With the new legislation and policies that are currently in the works, the student loan industry is clearly a field of the finance world that may soon look very different from how it does now. As certain acts pass in the government, the industry will shift in profitability, which will cause the companies offering private loans to shift their policy. There is no way to predict the ultimate result of this industry activity, but it will affect each and every one of the millions of people who have borrowed money to pay for education. Where this will lead, only time will tell.