Congress failed to reach an agreement to keep the rates on federally subsidized loans at 3.4%, causing rates to double effective July 1st. While this is unlikely to impact a student’s decision to attend college it points to several endemic problems with our country’s higher education. First, adjusted for inflation, tuition has increase more than 50% since 1999. Going back farther, since 1987 a four-year state school’s tuition and fees increased 200%!
Second, as a result of the increased cost, students are borrowing more to attend college. In fact, the average loan balance for a graduate is 90% more than just a decade ago (currently totaling $20,326). Total student loan debt in the country is now second only to mortgage debt! This debt cannot be erased like a mortgage under a foreclosure scenario; students will be left to bear the burden of repaying these loans over a significant portion of their lifetime.
While it’s no surprise our Congressional leaders couldn’t agree on a solution, even one using market rates to determine an appropriate interest rate, the burden younger individuals face by the staggering cost of college, ease of borrowing (pushing the costs into the future), and ubiquitous bachelor’s degree requirements for many of today’s jobs is a major burden to the country’s future economic prosperity. Rather than consuming goods and services, the Millennials will be forced to divert more and more of their income to servicing their student loans.
Source:
Bloomberg Businessweek, July 1 – 7, 2013
