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Utah's college student presidents are banding together to demand Congress prevent the interest rate on subsidized student loans from doubling next month.
"Many students are struggling to obtain a higher education degree in order to better their lives and contribute positively to society," wrote the cadre of presidents, led by the University of Utah's Geneva Thompson.
"However, the recession and limited employment opportunities are making pursuit of a higher education degree extremely challenging," said their June 8 letter to federal lawmakers.
Last year, the Obama administration cut the interest rate for subsidized Stafford loans in half, from 6.8 percent to 3.4 percent, for the nation's neediest student borrowers. At the end of the month, the interest rate resets to the standard 6.8 percent unless Congress acts.
There is broad support for extending the lower rate for another year, but little agreement on how to cover the $6 billion cost. Republicans insist the money must come from repealing part of the Affordable Care Act.
An extension would benefit a minority of student borrowers — the third who qualify for subsidized Stafford loans — and then only for loans taken out next academic year, starting July 1. At stake for such borrowers is a saving of about eight or nine bucks in monthly payments over the 10-year life of the loan.
The proposal is a minor, short-term fix to the nagging problem of college affordability, according to David Feitz, executive director of the Utah Higher Education Assistance Authority.
"We favor anything the nation can afford," Feitz said. "What we need is a longer-term solution to help to keep these costs of borrowing as low as possible. That is not being discussed."
According to his calculations, qualified students borrowing $5,000 next year will see their borrowing costs increase by about $1,000 if the interest rate is reset. Still, it adds up to a lot of money for Utah families, given the volume of federal loans.
For the 2010-11 academic year, 182,545 students attending Utah colleges and universities borrowed $881 million, according to U.S. Department of Education data. Feitz estimates up to 60,000 students will be affected by a one-year rate change.
As for permanent solutions, proposals vary widely. A Utah State University scholar suggests the federal government get out of the student loan business altogether. Subsidizing student borrowing is creating a $1 trillion debt bubble that would rival the housing debacle if it bursts, wrote James Harrigan, a fellow with USU's Institute of Political Economy in a recent opinion piece in U.S. News.
Policy analyst Jason Delisle proposes pegging all federal student loan interest rates to the 10-year U.S. Treasury bond rate, plus three percentage points. This plan, introduced in the Senate earlier this month, would reduce the long-term cost of the Stafford program but reduce the cost to borrowers in the short run, says Delisle, director of the Federal Education Budget Project at the New America Foundation.
U. students last week organized a calling campaign to lobby Utah's congressional delegation to keep the subsidized rate low. State officials say two-thirds of Utah jobs by 2020 will require some kind of post-secondary degree or credential. Affordable access to college is critical if the Utah workforce is to meet the needs of the economy, according to Thompson, and hiking the interest rate won't help.
"It will be one more barrier to make it harder for a student to come to any university or college," she said. "We want to focus on limiting those barriers as much as possible. We are encouraging Congress to find a solution. We aren't going to tell them what the solution is."