Student loan debt is the second-largest debt in the country, topping $1 trillion. If nothing is done, the current interest rate for this subsidized type of loans will double beginning on July 1. Several proposals have been made to prevent this increase that will raise the rate from 3.4% to 6.8%. They would link student loan interest to the Treasury bonds market to give it flexibility, instead of being pegged to a percentage that is arbitrarily set by Congress, as it is now.
The ideal is to make a change to reduce student debt through lower interests, to have the possibility to renegotiate and even to have debt forgiven, depending on the circumstances, like the White House proposed. However, the House of Representatives has a different idea.
The Smarter Solutions for Students Act, a bill that the lower chamber passed last week, sets a formula that in reality increases the debt as the years go by instead of reducing it. That was the conclusion the non-partisan Congressional Budget Office reached when it evaluated the bill.
Instead of helping students by alleviating their debt load, this proposal worsens the situation through annually adjustable loans that could reach interest rates of up to 10.5%. All in the name of a free market.
This bill that is meant to provide momentary relief is instead increasing the cost of the loan, even if not before the July 1 deadline. Meaning, in the name of reducing the costs, a formula to increase them was created.
The real purpose of this bill is to make students shoulder the responsibility of paying the national debt. It is hypocritical for lawmakers who say that they want to protect the coming generations from the fiscal debt to propose today to bury it instead into personal debt.
The president has threatened to veto this bill. Meanwhile, the Senate is starting to debate its own bill. We hope the new law takes into account the fact that individual professional training is an investment that will provide economic and social benefits, instead of burdening students with bigger debts than the ones they have today.