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TRENTON, NJ – Unless Congress acts, on July 1, the interest rate for 144,926 student loan borrowers in New Jersey will double from 3.4 percent to 6.8 percent. According to an issue brief released today by NJPIRG, the rate increase would hike the cost of New Jersey students’ loans by over $134 million. That translates into a $928 increase in debt per student, per loan.
“Student loans should make college more accessible so that we can be better prepared for the future,” said Loren Whitaker, a student at Rutgers Newark. “But instead the federal loan program is burying our future in debt.”
At issue is the interest rate for subsidized Stafford student loans. The low 3.4 percent rate was set to expire in 2012, but Congress and the President temporarily extended it for one more year. Senator Robert Menendez was among those who voted for both the first and final version of the rate extension last year. Now the interest rate is set to double to 6.8 percent on July 1 unless Congress acts to extend the current low rate.
Student debt is a growing hardship for many students and recent graduates, limiting their financial options and making it difficult for them to save up for buying a home or starting a family. Just last year, student debt nationwide hit the $1 trillion mark, passing credit card debt as the country’s top form of consumer debt. The average college graduate with loans in New Jersey currently has $27,610 in student debt.
“Congress should remember that the ultimate purpose of federal student lending is to invest in our economic future. Pushing us deeper into debt undermines that purpose,” said Katie Park, a political science student at Rutgers New Brunswick.
Subsidized Stafford student loans are offered to the neediest students, who get hit particularly hard by high levels of debt. Sixty-eight percent of all subsidized student loan borrowers are from families with incomes of less than $50,000.
In addition to the direct impact on students, the nation’s economic recovery as a whole could be hastened by easing the burden of high student loan debt. Despite the number of unemployed workers looking for jobs right now, the lack of an educated workforce remains a persistent problem for our country, making it even harder to meet the economy’s needs. By 2020, 66 percent of all jobs in New Jersey will require a bachelor’s degree or higher.
“Keeping the interest rate low on student loans will make college more accessible and send an urgent signal to students, workers, and the unemployed to get the postsecondary training needed to adapt to new economic realities,” said Jen Coleman, NJPIRG Advocate.
In addition, NJPIRG projected that, if Congress stops the interest rate from doubling, over $134 million would be spent in New Jersey's consumer economy instead of being used to pay down student debt.
The federal government is projected to collect 12.5 cents for each dollar loaned in the subsidized Stafford student loan program in 2013-14. In total, student loan programs are expected to generate a whopping $50 billion in revenue for the federal government this year.
The revenue generated by the student loan program comes at the expense of student borrowers, who go deeper into debt as a result. An increase in the student loan interest rate would allow the federal government to profit even further while adding to students’ debt load.
“Students and families consider higher education to be an investment in the future,” explained Coleman. “Congress seems to be working against that investment and things are about to get worse for borrowers, unless Congress acts now with students' future in mind.”
Several comprehensive student loan reform plans are pending in Washington, DC, but none have won support from student and consumer groups. The U.S. House passed a bill two weeks ago that increases interest rates even more in the long-term than if the rate is allowed to double. The President has proposed a plan that keeps rates at 3.4 percent in the near term, only to allow them to increase above 6.8 percent later. In the Senate, Sens. Tom Harkin (D-IA) and Jack Reed (D-RI) have proposed a short-term solution which NJPIRG supports, a two-year extension of the low 3.4 percent rate that is paid for by closing corporate tax loopholes.
Download NJPIRG’s issue brief, “Student Loan Debt in New Jersey,” here: http://njpirg.org/reports/njp/issue-brief-student-loan-debt-new-jersey
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NJPIRG, the New Jersey Public Interest Research Group, is a nonprofit, nonpartisan public interest advocacy organization that takes on powerful interests on behalf of its members, working to win concrete results for our health and well-being.
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