Sunday, May 13, 2012

Student Loans: Interest Rates Effecting College Decisions


           One current issue in our society today is the topic of interest rates on student loans. Many know that the recession is becoming hard on everyone, but mainly those without college experience who are having trouble finding work. With the unemployment rate at one of the highest it has ever been in recent years people are deciding to go to school to further their education in hope to find a more stable job, and increase the chance of getting becoming employed. In the job market today very few businesses will even look at a resume without some sort of college degree on it. With everyone aspiring to attend college the cost of college comes into effect, which is far from cheap. Student loans are very beneficial to those who are not able to afford to attend college, but those loans can take a toll on the students when it comes time for them to be paid off. With the interest rates on student loans set to double on July 1, 2012 it will make it even harder to pay off those loans, and also make the decision harder on those who must choose whether to attend college or go straight into the work force.
Image from InterACT
            Many of student loans that are taken out by college students each year come from Stafford Loans. Stafford mainly issues these loans to middle to low income families that would have trouble affording a college education without additional help. They are able to give students the opportunity to further their education and the chance to become more successful in their lifetime without having to have their families pay for all of the tuition. With that said Stafford Loans constituted 35 percent of education loans issued, 38 percent of federal education loans (excluding private loans), and 42 percent of federal loans to students (excluding loans to parents). Many people are aware that when taking out a loan is the interest rates are a very important factor. Since 2007 when the College Cost Reduction and Access Act was passed, the interest rates on student loans was set to be 3.4% which is very low for student loans. This gave many students the opportunity to make loans more affordable, and make it much easier to pay them off.
            In the next upcoming months, Congress must make a decision as to whether keep the interest rate at 3.4% or double it to 6.8%. Most of the democrats and republicans in the house feel that the bill must be passed and that the interest rates should be kept at the current rate for another year. They feel that this will buy them enough time to make a compromise between the two parties on what should be done to resolve the issue. By passing the bill that will keep the interest rates at 3.4% for one more year will cost the government an estimated six billion dollars, and paying for this seems to be a deciding factor. The Senate Democrats plan on funding this cost by closing a tax loophole, which would raise Social Security and Medicare taxes on select wealthy stockholders of private companies. The Senate Republicans are in opposition to this way of funding the six billion dollars, and they would rather cut the Prevention and Public Health Fund in President Obama’s health care law. Some republicans and democrats in the house say that they feel that the six billion dollars is just too high for the US to have to pay for a single year of keeping the interest rates low. Both parties need to figure out a solution so that they are able to keep the interest rates on student loans low for the sake of college students and their families.  
            With the economy being as bad as it is and unemployment at a very high rate, most people are deciding to attend college in order to help them with their chances of becoming employed in their future.  With unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school. For one who has a college degree versus someone who does not, the person with the college degree will earn about $650,000 more in earning throughout their life. This makes the decision obvious for anyone who is trying to earn a higher salary that they should attend college and get a degree. The only problem with this is the cost that it takes to attend college.
Image by Chegg Blog
            Loans are one of the deciding factors of attending college for many students. They have to decide if they are willing to pay everything back, even though they will be making a higher salary for those who do not go to college. Every year the average debt due to student loans rises. In 2010 the average student who took out student loans owed over $25,000, which was a five percent increase from the year before in 2009. College students who took out loans and who have graduated have a set plan in order to pay off their debt, but when newly graduated college students have an unemployment rate of approximately 9.1% it gets harder and harder to stay on track to pay that debt off. “Another sing that loans are becoming more burdensome concerns the average amount of debs that students now incur. Between 1985 and 1991 the average student debt grew from $6,488 to $16,417” (Fossey 11). At this rate something needs to change so that the student debt does not continue to increase.
It all comes down to the decision of the high school graduate, and what they want to do with their life. Some see the advantages of a college degree by seeing the money that they will make in the long run, but some feel that they are not cut out for the college life. They feel that they just want to enter straight into the work force and start making money now, rather than going to college and having to pay off their student loans for several years once they graduate. In 2010, Ohio’s average debt per student for public four-year institution and private non-profit four-year institutions is $27,713, which is the seventh highest state in the nation.
            The cost of college tends to increase every year, and even though the yearly income of individuals increases as well, it doesn’t increase at the same rate. In 2010, the average personal income per capita in Ohio was $36,421, while the tuition and room and board of Ohio University totaled up to about $19,029 for an undergraduate student who was a resident of Ohio. Compare this to the year of 1980, where the average personal income per capita was $9,399 and the cost of Ohio University was $3,225 for an undergraduate student from Ohio. In other words, in 1980 the cost of attending Ohio University was about 34.3% of the average yearly income in Ohio, but in 2012 college takes up about 52.2% of the average yearly income. With college tuition increasing at this rate it will make it more difficult for some to afford to further their education. This could be considered one of the main flaws in our society because money should never be the reason why one should not be allowed to attend a college or university. 
            In 2007 Congress passed the College Cost Reduction and Access Act, which lowered the original interest rate of student loans 6.8% to 3.4%. This was designed to “allow students to have better access to college and an improved ability to bay of post-education debt” (4).  This act was only designed for a four-year plan because of the cost that it would have taken to continue to be available. This act is supposed to expire in July 1st of this year, so Congress must vote on a decision before that date on whether on not too keep the interest rate the same, double it, or find another solution that both parties would agree on. This issue is very current in the news today, and a decision could possibly be made very soon to resolve the matter.
Image by White House
            With the presidential and congressional elections coming up, the interest rates on student loans could really affect the decisions of young voters. One of the major issues with this topic is that many feel that this will be the deciding factor on which candidates the young voters decide to vote for in the 2012 presidential and congressional elections. President Obama believes that the four-year plan of keeping the interest rates low should be extended. Several republicans are accusing him of trying to buy the ballot of young voters by supporting this cause. Getting the young voters is a key part in an election, and by keeping the interest rates low could help get their support. Statistics from 2008 show that out off all Americans that are able to vote, 21% of those voter are between the ages of 18 and 29. This age range consists of about 41.9 million of America’s total population. Needless to say the young voters can have a tremendous impact on the election results. However, the problem with this is that there are a good proportion of these voters who choose not to participate and vote for a candidate.
We’ve all heard that young Americans are apathetic, self-absorbed, lazy and certainly indifferent to civic matters. It is a turned-off generation we are told, Youngsters are too interested in having a good time, hanging out at the mall, and hooking up to care about civic matters. (Shea 3)
These young voters should really become involved because the decisions that they choose not to be informed with effect them directly. Here we are given the freedom to have a say in the matters that are going on right in front of us, and not to take advantage of that is an embarrassment to what our country gives us.
            A college education is something that almost everyone needs in out society today, and it makes it difficult to fine a job without a degree. With the interest rates on student loans set to double in the next couple of months, this is a key issue that can affect college students who are taking out loans in order to be able to afford their college education. If the interest rates rise then students who are relying on loan to attend college will be in greater debt, and it will take longer to pay off. College should be accessible to anyone who wishes to attend, and the interest rates on loans should not restrict people from having the freedom from having a college education.


 
Printed Work Cited
Shea, Daniel, and John Green. Fountain of Youth. Lanham: Rowman & Littlefield, 2007. Print.

Fossey, Richard, and Mark Bateman. Condemning Students Debt. New York: Teachers College Press, 1998. Print.