Student Loan Interest Rates

http://abcnews.go.com/ABC_Univision/News/july-hike-student-loan-interest-rates-explained/story?id=19314208



Good Afternoon Everyone,

I just wanted to share that link above, because it is an important moment in student funding. In the education field and those of us still attending school, student loans have been a thorn in our side as well as one of life’s subtle reminders there are times when you just have to suck it up, for instance taking out student loans to pay for your education. Student loans have been called many things: a means to an end, double-edged sword, etc. One of the only things we can do at this point is wait. The frustrating part is that politics plays an incredible role in all of this, and regardless of whether your democrat or republican, student loans do not break you down by political affiliation. It is something we can converse about from a neutral territory with one common goal. What is best for the students and our future graduates? And don't get discouraged. Even the leader of the free world had to contend with student loans. President and First Lady Obama finished paying off their own student loans nine years ago (DERUY, 2013)

The easiest way for me to break down the potential risks of increasing student loan rates even just on the subsidized side, is a look at the economic long-term effects. Most of what I will detail comes in the form of what Paul Krugman a renowned economist calls “your spending income, is my spending income”. Meaning when I spend money I help you have spending money. Let me give a quick example. When I go to the market and buy a frozen chicken dinner, I can help the high school cashier pay for her movie ticket that night. In return, that helps another high school student that works as the ticket cashier. It helps that cashier perhaps pay for their used car at the local used car lot, who then in return can go back to the grocery market to buy a food order for his or her family, and that starts the cycle all over again. How does this happen? When I buy that frozen dinner with my income, I am giving some sort of profit to the grocery store, from that income they pay the cashier and it goes on and on. While a very simplistic example, the concept itself is what Mr. Krguman shoots for. What does this have to do with student loan rates?

Keeping in mind that concept, lets fast forward to someone you may know who is graduating college. It is important to note the article references that increases are coming from undergraduate student funding, but more debt on that end will count just as much. Typically, what are the next steps this new graduate with increased debt and a loan that was 3.4% and now 6.8% take?The first step is deciding to pursue a higher education degree or testing the job market. Increasing undergraduate debt doesn’t make the type of job they will need to get in order to afford that increase develop out thin air. It should come as no surprise that since our economic hiccup the number of students pursuing graduate and doctoral degrees is at its highest level in educational history. With the increased competition of graduate degrees and lack of careers for bachelor degrees, can we blame the students for wanting to compete or at least afford their loan payment? Post baccalaureate enrollment had been steady at about 1.6 million in the late 1970s and early 1980s, but rose 78 percent between 1985 and 2010.You can reference table 215. (Chapman, 2012). If a student does continue on their academic career, even more debt obviously results. The thought process to offset that decision is that higher paying jobs would be available for the students upon completion of their graduate courses. Now for sake of time I’m going to assume we all know that under employment and unemployment are at concerning if not downright scary levels still with no marked tendency towards pre 2008 rates. So with increased debt on the student side and the value of the job a graduate student can obtain falling, we can begin to see some issues developing. A quick reminder about the housing crash, increased debt in the mortgage borrower due to poor standards in borrowing limitations made them ripe for income over extension.We can see a similar pattern emerge if the careers are not available to pay for debt students undertake; they too will be ripe for income over extension. However, they will not be foreclosing homes; they just will not be purchasing any, which if that happens on a large scale could create a stagnated economy. Make no mistake that debt will increase with student loan increases, be it, undergraduate or graduate that is just the way increasing loan rates works. Now some might say, well so what if they cannot buy a house renting is still generating an income for the landlord and that applies to “your income is my income”. The person who says this is correct, but let us look at that a little further.Have you ever bought your first home?If you have, then you know just how many different purchases within the first 6 weeks are involved as well. The house itself; which helps the real estate agent and his/her income,hiring inspectors which helps provide for them and their family, contracting a cable company which employs a number of local people, buying furniture , groceries, dishes, paint, lawn mowers, landscapers, contractors, on and on and on. We could come up with thousands of people that new homeowners interact, and on top of that, their home acts as an investment into the economy for an extended period.

I know it seems kind of drastic to blame all of these factors on increasing student loan rates, and I’m not the type of person that paints the end of the world because the consumer price index jumps up a quarter of a percent. It is hard not to think about though. Long-term effects are often over looked, effects that now could very well lead to the new bubble burst or crisis. Ask any of the companies or investment banks that were too big to fail leading up to the January 2008. Until then my opinion is all I can have. My opinion is increasing the debt of a population without increasing that population’s chance of full time employment seems counterproductive to me. The good news is, academic intelligence is also at an all-time high, and eventually maybe some of that intelligence will take Washington and decision makers by storm.

Reference

DERUY, E. (2013, June 3rd). The july hike in student loan interest rates explained. Retrieved from http://abcnews.go.com/ABC_Univision/News/july-hike-student-loan-interest-rates

Chapman, C. (2012, May 1st). Digest of education statistics. Retrieved from http://nces.ed.gov/programs/digest/d11/ch_3.asp

Table 215. Total postbaccalaureate fall enrollment in degree-granting institutions, by attendance status, sex of student, andcontrol of institution: 1967 through 2010
Year	Total	Full-time	Part-time
1	2	3	4
1967 ...............	896,065	448,238	447,827
1968 ...............	1,037,377	469,747	567,630
1969 ...............	1,120,175	506,833	613,342
1970 ..........................	1,212,243	536,226	676,017
1971 .........................	1,204,390	564,236	640,154
1972 ....................	1,272,421	583,299	689,122
1973 .......................	1,342,452	610,935	731,517
1974 ........................	1,425,001	643,927	781,074
1975 .............................	1,505,404	672,938	832,466
1976 ..........................	1,577,546	683,825	893,721
1977 .......................	1,569,084	698,902	870,182
1978 .....................	1,575,693	704,831	870,862
1979 ..........................	1,571,922	714,624	857,298
1980 .........................	1,621,840	736,214	885,626
1981 ......................	1,617,150	732,182	884,968
1982 .....................	1,600,718	736,813	863,905
1983 ........................	1,618,666	747,016	871,650
1984 ......................	1,623,869	750,735	873,134
1985 ......................	1,650,381	755,629	894,752
1986 ..................	1,705,536	767,477	938,059
1987 ...................	1,720,407	768,536	951,871
1988 ..................	1,738,789	794,340	944,449
1989 ..................	1,796,029	820,254	975,775
1990 ...........................	1,859,531	844,955	1,014,576
1991 .......................	1,919,666	893,917	1,025,749
1992 .......................	1,949,659	917,676	1,031,983
1993 .....................	1,980,844	948,136	1,032,708
1994 ....................	2,016,182	969,070	1,047,112
1995 .......................	2,030,062	983,534	1,046,528
1996 ...........................	2,040,572	1,004,114	1,036,458
1997 .......................	2,051,747	1,019,464	1,032,283
1998 ...................	2,070,030	1,024,627	1,045,403
1999 ...............	2,110,246	1,049,591	1,060,655
2000 ..................	2,156,896	1,086,674	1,070,222
2001 .................	2,212,377	1,119,862	1,092,515
2002 .................	2,354,634	1,212,107	1,142,527
2003 .................	2,431,117	1,280,880	1,150,237
2004 .................	2,491,414	1,325,841	1,165,573
2005 .................	2,523,511	1,350,581	1,172,930
2006 .................	2,574,568	1,386,226	1,188,342
2007 .................	2,644,357	1,428,914	1,215,443
2008 .................	2,737,076	1,492,813	1,244,263
2009 .................	2,862,391	1,579,283	1,283,108
2010 .................	2,937,454	1,630,699	1,306,755

NOTE: Data include unclassified graduate students. Data through 1995 are for institutions of higher education, while later data are for degree-granting institutions.  Degree-granting institutions grant associate’s or higher degrees and participate in  Title IV federal financial aid programs. The degree-granting classification is very  similar to the earlier higher education classification, but it includes more 2-year colleges  and excludes a few higher education institutions that did not grant degrees.  (See Appendix A: Guide to Sources for details.) Some data have been revised from previously published figures.

SOURCE: U.S. Department of Education, National Center for Education Statistics,  Higher Education General Information Survey (HEGIS), "Fall Enrollment in Colleges and Universities" surveys, 1967 through 1985; Integrated Postsecondary Education Data System (IPEDS), "Fall Enrollment Survey" (IPEDS-EF:86-99); and IPEDS Spring 2001 through Spring 2011,  Enrollment component. (This table was prepared September 2011.)