In 2007, former President George Bush signed a law that set the interest rates for student loans at 3.4%. This law, which was meant to last only four years, for the duration of his term, would be null after that time, meaning that the previous student loan interest rate of 6.8% would resume. With the national debt of students recently surpassing $1 trillion, with the individual average coming in at around $25,000, and the economy still in a fragile state after the recession, many politicians on both sides of the aisle have been looking for a solution.
It’s first important to realize that there are different kinds of loans that students can take out. There are federally subsidized loans, which are subsidized by the federal government which often carry a lower interest rate, and unsubsidized loans which have an overall higher interest rate, and are not subsidized, or funded, by the federal government. The House of Representatives passed a bill that looks to finance these continued lower interest rates for unsubsidized loans, but at the cost of a preventative health care program, that helps provide families with much needed preventative healthcare. This bill, which was passed with a 215 to 195 vote, with mostly Republican support, is asking the American people to choose between healthcare and education. Congress must also vote on the interest rates for federal subsidized loans, before July 1st, or these will double their interest rates to 6.8% as well.
Before the House passed this bill to cut the health programs and keep the lower loan rate, they had originally voted for the student loan rate to instead go back up to 6.8%. This was met with pressure from the public, who urged for the rate to remain at 3.4%, and Republicans decided to cut the Prevention and Public Health Fund, which was part of the health care reforms that Obama has passed. The program, which was designed to help American families lower their amount of health care costs by doing preventive measures was called a “slush fund,” by Boehner, Speaker of the House of Representatives. In order to keep the student interest rates at 3.4% under this plan, would mean the cutting of funding for immunizations, screenings for cancer, and healthy living programs around the country.
Another option for keeping the student interest rates at 3.4%, instead of cutting the preventative programs, proposed by the Democrats, is to take away tax subsidies that companies that manufacture oil currently receive. This version of the bill was blocked by the House. The Senate, which is Democratically-controlled and the next in line to pass or veto the bill, plan to present their version of the bill, which will close the tax-loophole and stop the oil companies from gaining tax subsidies, using this tax revenue to keep the student rates at 3.4%.
Let’s take a look at how this will have an impact on you, in real numbers. Say you, or your child, has to pay $20,000 each year for their tuition. Maybe you get lucky, and they get a scholarship or a Pell Grant, and this takes the cost down to $18,000 a year that you need to fund with loans, either subsidized, unsubsidized, or a combination of the two. With the principle of the loan at $18,000, and the rate at 3.4%, with annual interest added to the total, the new total you owe will come to $21,060, if you pay it back in a five year span. Now think about if the interest rate were to go back to 6.8%. This would mean that over a five year span, instead of the $18,000 principal amount, or the $21,060 after interest, you would be paying $24,120. That’s an extra $3,060 out of your pocket, being taken away from your family, for the same education as you would receive at the 3.4% interest rate. And when you factor in the 4-5 year time span it takes to receive a Bachelor’s degree, you’re looking at a principal loan of $72,000, and with a rate of 6.8% interest, paid back over the span of ten years, the interest will bring the total you owe to $120,960. That’s a difficult sum that many families in today’s economy, simply can’t afford to pay.
And while the Republicans have a plan to keep the rate at 3.4%, by cutting preventative health care programs, when you consider that American families, on average, spend more than $20,000 a year on health care costs that can be alleviated by these preventative programs, are the Republicans honestly providing a solution that will save families money? Do the math – it doesn’t add up in favor of middle-class American families. So, what do you think? Should the government cut funding to preventative health programs to keep the interest rate, or should they stop the oil companies from gaining a tax break?
Glossary:
Interest rate – Rate, of interest paid by borrower, for using money of a lender, added on to total owed.
Subsidized loans – Loan that does not accrue interest until after recipient leaves schooling.
Unsubsidized loans – Loan that government does not pay interest on, unlike the subsidized loans, where borrower is responsible for interest on loan, from the day it is issued to the day it is repaid, including time in school.
Preventative healthcare – Health care measures and programs, that aim to keep people from suffering from health issues, like diabetes, cancer etc.
Tax subsidies – Tax reduction that government gives a business.
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