As you probably already know, July 1 marked a new chapter in the ongoing debate on U.S. student loan practices, as the interest rate on subsidized federal Stafford loans doubled to 6.8%. With this change, the average student can expect to spend an additional $2,600 upon returning to campus this year. On Wednesday the Senate affirmed its reluctance to fix this issue, failing to approve a Democrat-sponsored plan to fix the rates at the current 3.4% level for the next year. Anyone surprised? Didn't think so. Before we all go ahead and indict Senate Republicans for failing to uphold affordable higher education, which, let's face it, most of us have already done, let's review some facts on financial aid.
As of June 2010, U.S. student loan debt surpassed credit card debt. As of 2013, it surpassed $1 trillion. Currently, it is the largest form of household debt in the country. Student loans are debt, debt-to-income ratio is factored into credit scores, and poor credit is bad for future financial freedom. So now more than ever before, students have to think hard about the return on their investment. Finally, student loan debt is one of the only forms of personal debt that is not alleviated by filing for bankruptcy.
According to the omniscient outgoing mayor of New York City, Michael Bloomberg, the solution lies on the buyer's end. Not everyone belongs in college. The average middle-of-the-pack kid should skip college and become a plumber, he argues. And while there may be some fundamental truth to the notion that demand for higher education has outpaced market requirements and the system is flooded with individuals who will suffer the consequences, it doesn't exactly jive with the premium that our society has placed on education for generations. We were taught that pursuing education pays off, and so we borrow, expecting our government to reward our pursuits by keeping our loans affordable. But this is clearly not the case.
Blaming the growing student loan debt on the politicians who refused Wednesday's deal is easy. It is not, however, necessarily accurate. Keeping interest low in the immediate future while costs and rates of borrowing continue to soar perpetuates an unsustainable system. The real answer, unfortunately for those of us currently matriculating on the government's dollar, is not so simple as to keep interest rates low. Let's not forget that first and foremost, we are willingly accruing debt. But more importantly, the money we are borrowing is going somewhere, not directly to us. There is a middle-man in this stand-off, and it is the institution of higher education.
According to the Delta Cost Project's assessment of college spending, the rise in tuition following the financial crisis in 2008 was the result of state spending cuts for public institutions and declining endowments and investment income for private institutions. As a result, tuition rose, and the government continues to meet the need for aid. While the fact remains that education is, like it or not, is a discretionary expense, it is also true that government spending is discretionary on the larger scale. To simply blame Republicans for not approving the Democrat-backed plan obfuscates the reality of federal funding. In order to keep student loans affordable, funds can — and moreover must — come from sources besides loan interest. Alternate plans rely on drawing in funds by closing corporate tax loopholes.
The reality is that all parties in the system must be held accountable. Individuals should not take on debt they will not likely be able to pay back. Educational institutions should not take on programs they cannot sustain. And together, we should hold our government responsible for where it is allotting our funds, and that does not mean crying foul every time Republicans don't pass a White House-sponsored plan.