(AP Photo/Steven Senne)
The student loan crisis finally reached center stage in Washington after the House GOP budget called for letting interest rates double on government-subsidized loans (and for deep cuts in Pell grants and other student support). If it passes, students who borrow the maximum will end up paying as much as $1,000 a year in added interest. President Obama sensibly called for extending the lower rate, stumping at colleges and on talk-shows to enlist students and others in the cause.
Republican leaders quickly realized the perils of angering young voters. In another flip-flop, Mitt Romney decided to support extending the lower rate, while the House GOP passed an extension but taunted the president by stipulating that it be paid for with money taken from the preventive health fund created by the Affordable Care Act. Senate Democrats propose paying for it by closing a loophole that doctors, lawyers and small businesses use to avoid payroll taxes.
Ignored in the standoff is that even at the lower rates, more and more students can’t afford the college education or advanced training everyone but Rick Santorum believes they need. Since 1982 the cost of living has doubled and healthcare costs have tripled; college tuition and fees have exploded more than four times. All this comes amid revelations about the hundreds of billions in loans—at below-market rates—ladled out to the banks by the Federal Reserve and Treasury during the financial crisis.
The student loan crisis has had two effects. The United States, once the leader in the percentage of college graduates age 25 to 34, has dropped to sixteenth among thirty-six developed nations, with more and more students dropping out because they can’t afford the rising costs. The second effect is ruinous debt: the average indebted college graduate is $25,000 in hock. Total student debt exceeds $1 trillion—now greater than credit card debt. And student debt is inescapable. Bankruptcy rarely extinguishes it; even Social Security payments can be garnished in case of delinquency.