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Over the past few weeks, a divided Congress came together to deliver for the economy, as well as students and families, by extending the low 3.4 percent interest rate on subsidized Stafford student loans.
The rate was scheduled to double on Saturday, June 30, without a new plan from Congress. With the atmosphere in Washington, D.C., even more partisan than usual because of the impending election, many were skeptical that those on both sides of the aisle could come together to freeze the low interest rate on these loans. Yet, Democrats and Republicans responded to the public by agreeing on a new law freezing the low rate for one year, and just in the nick of time.
Without action, student loan interest rates would have doubled from 3.4 percent to 6.8 percent for almost 8 million students. Here in Wisconsin, 163,427 students were spared seeing the costs of their loans increase by nearly $1,000 on average.
On the economic front, that's good news. For the economy to grow, we need more college graduates and they need to carry less student loan debt.
National workforce projections show that by 2018, there will be jobs for as many as 22 million new workers with college degrees. On our current trajectory, we won't make that goal - in fact, we'll miss it by 3 million workers. Here in Wisconsin the job market is experiencing a gap between the numbers of people without jobs and the skills employers are looking for in their employees. If we keep graduating students at the current rate that students are graduating, then by 2020, 64 percent of the jobs in the state will require a certificate or college degree, but only 40 percent of the population will have one.
Keeping the interest rate low on student loans sends the urgent signal to students, workers and the unemployed to get the postsecondary training needed to adapt to new economic realities.
Student loan debt recently surpassed credit card debt as the top form of consumer debt across the country, at $1 trillion. Such significant debt is a serious drag on the economy. The vast majority of student loans are federal, with eight in 10 backed by the federal government. Extending the low rate in Wisconsin translates into close to $160 million in savings that student loan borrowers can now put toward buying a house or starting a family once they graduate.
Federally, freezing the rate at 3.4 percent did not come cheap. Congress had to find $6 billion to pay for it. Facing intense media scrutiny, and hundreds of thousands of emails, phone calls, and petitions from students, families, and borrowers across the country, find it they did. Given the tough budget environment in Washington, D.C., right now, this was no small feat.
Passage of the one-year extension is an important step toward making college more affordable. But colleges and state and federal lawmakers will need to do more over the next year to ensure that students aren't plunged deeper into debt. The lingering national recession has led to weak state economies, which in turn have squeezed college budgets across the country. That has resulted in tuition hikes and fee increases, which translate into more student loan debt, and the situation is not going to improve in the near term. Wisconsin has not escaped this reality: The average Wisconsin undergraduate with student loans leaves school with more than $24,000 in debt.
Next year Congress will need to come up with a longer-term fix to the interest rate on subsidized Stafford student loans, now scheduled to double on July 1, 2013. In addition, if Congress cannot stop the $1.2 trillion in automatic spending cuts scheduled for Jan. 1, students face looming cuts to the Pell grant program, a cornerstone financial aid program which gives scholarship aid to students according to need. These problems, if not addressed, will make student loan debt skyrocket.
Higher education in Wisconsin and across the U.S. continues to be vital for both individual success and the nation's social and economic health. Students and workers are struggling in today's economy. Our leaders deserve praise for the interest-rate freeze. They delivered for borrowers and for our economy. Now is the time to remind them that more needs to be done to keep college accessible and affordable.
Murray, president of the United Council of UW Students, is a UW-Stevens Point student. Melnyk, secretary of the Wisconsin Student Public Interest Research Group, is a UW-Madison student.
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