It’s a catch-22 for many Americans. They can’t afford a college education because they don’t have enough money. And they can’t make more money because they don’t have a college education.
The answer for many is student loans. They borrow money from the federal government, banking on gaining the near-future earning power to pay down their debt.
Some compile so much debt that they can’t pay their way out and finally have to file for bankruptcy. But many who borrow heavily for a college education do land better jobs with better pay and eventually pay off their loans and continue on to a financially rewarding career.
Traditionally, student loans have been offered at reasonable rates. That is, before a faux pas by the federal government nearly forced interest rates so high that it would have meant almost certain financial ruin for loan-dependent college students from low-income families.
Six years ago, Congress lowered the interest rate on student loans to 3.4 percent. That rate was set to expire last year, but lawmakers delayed action on re-establishing a rate in 2012, so that it wouldn’t become a presidential election-year issue. The trouble started this year, when legislators failed to establish a new rate. Beginning July 1, the interest rates on federal student loans automatically doubled from 3.4 to 6.8 percent.
On Wednesday, after months of partisan bickering, the House of Representatives finally got it right, passing a bill that will establish the interest rate this year at 3.86 percent for undergraduate loans and 5.42 percent for graduate student loans. The bill, already approved by the U.S. Senate, will also grant relief to those who would have owed the exorbitantly high interest rates on loans taken out after July 1.
More importantly, the bill, which President Obama is expected to sign into law, prescribes a new method for setting the interest rate. Instead of Congress reviewing and modifying the rate yearly, it will be figured by a formula based on market interest rates. The bill also includes a provision for protecting student loans from spikes in the market.