Generation Debt

The Daily Iowan (the University of Iowa's newspaper) editorial board wrote a piece today on the plus' and minus' of student loan consolidation. The story mostly focus' on their recommendation of changing the consolidation program to a variable interest rate as a compromise between Republican and Democratic lawmakers.

"Currently, graduating students can consolidate their loans and lock in an interest rate for as long as 30 years. That interest rate is determined by the interest rate when the students graduate. Graduating now? You'd pay off your college loans at a 35-year low. Graduated five years ago? You'd still be paying off college at a much higher interest rate for the exact same degree. This system pushes students to graduate based on the market, rather than their academic career."

"A variable interest rate, however, would vary payments based on the contemporary interest rate. That would put students who graduated five years ago - but lost their jobs when the economy took a nosedive - in the same position as a student graduating now. When the economy recovers, both graduates would be in a better position to pay back their loans."
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"Critics point to the difficulties of those entering public-service careers to pay of their loans at even these small interest rates. A difference of a few thousand dollars a year, which would happen if the economy grew and interest rates shot up, would be a crushing blow to such people, because their salaries do not tend to rise with the economy. This is a crucial problem that must be addressed by the reauthorization of this bill. Particularly for those who graduate when the economy is strong, paying back student loans is already a hardship. This bill must include a provision for loan forgiveness. Often available to teachers by both state and local agencies, loan forgiveness for an expanded number of careers would turn these vital jobs into fiscally viable options for students graduating with loans."

"The Higher Education Act is designed to offer education to a larger slice of the American public. It is also designed so we can learn from our mistakes; the law is not set in stone. We need to take advantage of this chance to help more incoming students get the funds they need to go to school, rather than keeping the money tied up subsidizing bank profit."