On Monday, the 1st of July, the interest rate on Stafford loans doubled from 3.4% to 6.8%. Stafford loans are given to students in the U.S. on a need basis where the cost of their higher education surpasses the amount they can pay themselves.
If rates remain at 6.8%, it is estimated that a typical borrower will pay $1,000 more over the duration of his or her loans. With more than 7 million students projected to take out subsidized Stafford loans for the upcoming school year, this would immediately result in an extra $7 billion paid out by the neediest student borrowers- as if the current student loan debt that stands at over a trillion dollars wasn't bad enough.
Under the present system the Congress sets the interest rate on the Stafford loan. Last summer, during the presidential campaign, Democrats and Republicans agreed to keep the 3.4% rate in place for one year. They then set the rates to double to 6.8% in 2013 if they failed to intervene and reach a consensus before the deadline. Despite attempts at reaching an accord the Congress has now left for its July 4th recess. The Republican-led House passed a bill in May to tie loan rates to the government's cost of borrowing, but the administration criticized some of the provisions and threatened a veto. The Democratic-led Senate stalemated. Congress can still intervene to change the interest rate when it reconvenes on the 10th of July.
If the interest rate stands it will prove to be great burden on the American working class. Even upper-middle class students are increasingly having to take out loans in order to pursue higher education. On top of this, recent trends show an overall decrease in government spending on higher education; since the financial collapse of 2008, state governments have cut funding to public universities by 28 percent, and tuition has risen 27 percent nationwide. Over the same period, median household income has dropped 8 percent.
A job market that isn't doing too well with low income and part time work becoming increasingly common, the graduates of universities in the US who otherwise deserve to step into a world full of opportunities after their higher education instead face decades of indentured servitude and a declining standard of living as they are crushed under debt.