In case you missed it, on Thursday the House passed a bill that would dramatically affect the nature of student loans in coming years. The bill, which passed in the Republican-controlled House by a vote of 221-198, would allow interest rates on student loans to vary year to year based on the strength of the economy (known in fiscal parlance as a variable interest rate). This measure would end a system in which interest rates on student loans are required by law to be fixed.
Democrats have already promised that this measure will not pass in the Senate, and President Obama has stated that he will veto the bill if it miraculously does make it out of Congress in its current form. But to be fair, earlier this year the White House proposed a plan for student loans which would tie interest rates to the government’s cost of borrowing, also causing rates to be variable. While this rate would fluctuate from year to year, students would be locked into the a fixed rate once they accept the loans, a measure which is not in place in the new bill passed by the House.
The end-result of this proposed legislation would be disastrous to millions of students nationwide, and would deliver a serious blow to America’s already reeling system of higher education, a system which has now shifted away from a period of cultivation for young people to a period when young people become enslaved to the debt they incurred as a result of obtaining a degree.
This legislation would mean even less certainty for students and their families, as they cannot be sure how much debt they would incur at the end of college. This in turn, means even less ability for students and families to financially plan for college, which would mean less certainty as to whether someone can even attend college.
As higher education has become increasingly unaffordable and more and more students are forced to incur debt to go to college of any sort, this will mean that students in every area and every program will be affected. Yes, there would be less graduates of expensive liberal arts schools with obscure degrees. But there will also be less graduates of trade schools — meaning it will be harder for you to get a qualified plumber or electrician — and even professional schools, meaning you might have a hard time finding a doctor.
A young person incurring tens of thousands of dollars in debt to obtain an education is now commonplace in our society. And this notion is sickening and disheartening for a number of different reasons.
The effect student loans have on our nation’s economy is mind-boggling.The market for real estate is often viewed as an indicator of the health of the overall economy. How many starter homes could new graduates make payments on if they didn’t have to repay students loans once a month? How much money could be invested into local communities if a substantial chunk of each young person’s paycheck wasn’t going towards student loans? How many new and innovative businesses would young people find the capital for if they weren’t burdened with loans?
Similarly, because debt from student loans is not able to be discharged in bankruptcy, many have wondered what will happen if a substantial number of those who incurred debt default on loans and are no longer able to make monthly payments. For this reason some have argued that the industry of student loans is the next major financial bubble that is bound to burst, and have the same crippling effects on our nation’s economy that the crash of the subprime mortgage market had in 2008.
Finally, an aspect of student debt that often goes overlooked is the psychological effect it has on a young person entering the workforce. Debt incurred from student loans means that new graduates will be less likely to take a risk and pursue a job or career that they are passionate about, yet which likely provides less immediate financial security. Following your passions often means taking a gamble with the hopes that this gamble will pay off for you in the future. However, you can’t really do this if you’re strapped with thousands of dollars in loan payments every month.
The passage of yesterday’s bill is another example of how many of our nation’s leaders continue to fail our youth in regards to higher-education. Each graduate with student debt is faced with a steep price for their education. However, due to the continued short-sightedness of our nation’s leaders in this regard, the price facing our nation for student loans is even steeper.