Obama promotes ‘Don’t Double My Rates’
Published: Tuesday, May 8, 2012
Updated: Tuesday, May 8, 2012 04:05
Unless Congress takes action, interest rates on subsidized Stafford loans are set to double from 3.4 to 6.8 percent effective July 1. With his “Don’t Double My Rates” initiative, President Barack Obama is seeking to inspire what he considers essential activism.
Stafford Loans are loans offered through the U.S. government to low-and moderate-income higher education students. There are two kinds of Stafford Loans, subsidized and unsubsidized. The subsidized version requires students to demonstrate certain financial need and excuse the student of any interest accrued in college.
According to the White House website, for the first time, Americans now owe more in student loans than in credit card debt. Obama said the average student with these loans will fall an additional $1,000 in debt each year Congress does not act.
Obama said supporters can call, write, or email members of Congress or tweet with the hashtag #don’tdoublemyrate.
Economics professor William Harris said the primary reason federal student loans may double is because student loans are unsecured loans, meaning they are not backed by any collateral.
“Unlike a car or a house, which represents collateral, on a student loan, there are no assets to attach, and so the rate has to reflect the fact that if there is default, there are no collateralized assets,” Harris said.
He also pointed out that another unsecured loan, credit cards, usually have interest rates between 18 and 22 percent.
Harris said that because of the large volume of student loans, there is a significant chance that some students will default, making lending more risky. Even if students declare bankruptcy, student loans are non-dischargeable, meaning the debt cannot be legally erased.
Senior management information systems major Chris Hall said that because college is becoming a profitable industry, he doubts education costs will drop.
“I have my own loans, and I am paying my own way through,” Hall said. “If the rates increase, it’s more money out of your pocket that could be going towards something else.”
Hall said he is considering contacting his Congressional representatives about student debt.
“I have written to Congress before regarding issues that have directly impacted my family or myself in the past, and I think that voicing my opinion to them again regarding rising student loan interest rates would be a good idea for all students to partake in,” he said.
Economics professor James O’Neil said the government takes on a risk by loaning money because there are often problems with repayment.
“The case is that the cost needs to be paid by someone,” O’Neill said. “If it’s going to be subsidized by the government, I’m not sure that’s fair either. If an individual takes a loan, they have the responsibility of paying it back.”
He said some students do not realize the future repercussions of taking out large loans.
“A lot of students don’t have the financial education tools to accurately assess what it’s going to mean to graduate with debt,” O’Neill said.
O’Neill said a lack of knowledge about financial intricacies contributes to students falling into debt.
“From a societal view, we haven’t enabled people to see what they should consume relative to their income,” he said. “It’s not just the students’ problem, but I think, on the education side, you’re going to see some online financial instruction.”
Freshman Billy Boyer, who does not have debt, said the price of an education is inflated. He believes the price will continue to rise for at least the next decade, which will only cause more difficulty for students attempting to pay off their loans.
“It’s unfair,” Boyer said. “College students are already having trouble as it is, let alone doubling interest rates.”
Jim Holloway, compliance manager at Student Financial Services, stated in an email message that it is important to note that students with subsidized Stafford Loans are not charged interest until they graduate, which means benefits or costs from Obama’s initiative do not apply to currently enrolled students. However, he remains supportive.
“It’s hard to find fault with a program designed to assist students,” Holloway said.
Holloway believes challenges controlling education costs will remain until the economy recovers.
“Nationwide, the largest sources of financial assistance are provided by federal and state governments, and budgetary difficulties will continue even as the economy improves, leaving little room for growth in spending for higher education,” Holloway said.
Economics professor Vincent Marra said increased demand for a college education, as well as costly technology, is also causing an increase in price.
“On the supply side, it’s more costly to provide state-of-the-art education,” Marra said. “To get schools more modernized is expensive. Some of the costs have to do with being technologically up to date.”
Marra doesn’t see many ways to stop the rising price of a college education because attending college is in high demand.
“A softening of demand will probably level off prices, but as long as many students want to go to college as it is, it probably will not go down,” Marra said.
Freshman economics major Gary Ulrich said he is concerned that if interest rates on student loans continue to rise, he might not be able to afford his education. He said that while the university provides financial aid, he believes the cost of tuition could be lower.