A talking point at the heart of the debate in Washington, D.C., over whether to extend a low student loan interest rate has made its way to St. Paul.
In a recent press release issued by the DFL, party chair Ken Martin said that if Congress doesn't renew the lower rate by July, many students could see their student loan costs increase.
"If Congress does nothing, interest rates for new subsidized student loans are set to double from 3.4 percent to 6.8 percent on July 1, causing at least 7 million students to be hit with an average of more than $1,000 in additional costs over the life of that loan," Martin said.
Martin and the White House, which came up with the talking point, mislead on how the change would affect students.
Congress has until July to extend the federal Stafford subsidized student loan interest rate for another year. If lawmakers don't, the rate will jump from 3.4 percent to 6.8 percent for undergraduate borrowers. Extending the lower rate would cost the government $6 billion.
In an effort to woo young voters and pressure Congress to act, President Obama has made the higher interest rate an issue. The White House has even given its campaign a Twitter hashtag: #DontDoubleMyRate.
Martin's claim stems from data on the White House website. A White House spokeswoman could not provide sourcing for the first part of Martin's claim that at least 7 million students would be hit by the interest rate increase.
But data collected by the College Board supports this part of Martin's claim; roughly 7.7 million students took advantage of the loan in 2010-11 school year.
Martin also said that students will pay a rough average of $1,000 more over the life of the loan.
The White House is assuming that the average Stafford subsidized loan is $4,200 and takes an average of 12 years to pay off. With a 6.8 percent interest rate, students would pay roughly $1,000 in additional interest.
But the White House is making some unrealistic assumptions - even according to the president's own fiscal year 2013 budget, which pegs the average Stafford loan at roughly $3,400 and assumes the standard pay-off period of 10 years. Using the Department of Education's loan repayment calculator, a higher interest rate of 6.8 percent would cost students an average of $524 more.
The Congressional Budget Office estimates that average Stafford loan at roughly $3,000 annually well into the future. In this case, students would pay only $384 more in interest.
Martin's talking point, which originated with the White House, is correct that "at least 7 million students" will be hit with more expensive loans if Congress fails to extend the lower interest rate.
But it wouldn't cost students an average of $1,000 more.
This claim is misleading.
The White House, Taking out Stafford Loans to help pay for college?: You could owe an extra $1,000 unless Congress takes action soon, accessed April 26, 2012
The White House, By the Numbers: $1,000, April 26, 2012
Federal Student Aid, Interest Rate Change for New Direct Subsidized Loans, April 23, 2012
The Department of Education, Fiscal Year 2013 Budget Summary, accessed April 26, 2012
The Congressional Budget Office, CBO March 2012 Baseline Projections for the Student Loan and Pell Grant Programs, March 13, 2012
National Public Radio, Student Loan Debt Exceeds One Trillion Dollars, April 24, 2012
The College Board, Trends in Student Aid
Department of Education, Standard, extended, and graduated repayment calculator, accessed April 27, 2012
Office of Management and Budget, Department of Education, accessed April 27, 2012
Office of Management and Buget, Federal Credit Supplement Budget of the U.S. Government, Fiscal Year 2012
Interview, Terry Hartle, Senior Vice President, Division of Government and Public Affairs, April 26, 2012
Interview, Jason Delisle, Jason Delisle, Director, Federal Education Budget Project, New America Foundation, April 27, 2012
E-mail exchange, Caroline Hughes, White House spokeswoman, April 26, 2012
E-mail exchange, Kate Monson, DFL spokeswoman, April 26, 2012
E-mail exchange, Johanna Diaz, spokeswoman for the Project on Student Debt, April 27, 2012
All of your sources, including the White House, use the word "student." I'd like to know the average GRADUATE'S total loan size and impact on total amount owed. I would submit that many of the students included in the data above received smaller loans, but never completed their degrees, usually as a consequence of the total costs of doing so. Those students' inclusion in the figures above brings down the true loan amount and repayment obligation borne by graduates who receive Stafford loans throughout their education.
Reading the analysis, the question is not whether the 7 million figure is correct ( if you check the House Education and Workforce report stating 207,087 Minnesotans out of 7,479,105 nationally) but the amount of the loan - either CBO's $3,000 or the White House's $3,400. Yet, our local Inver Hills Community College reports "On average, students at IHCC borrow $6,864 in federal student loans..
Other reports, I have seen which monitored every state and notes that Minnesota's average Stafford loan amount is $4,695 would pay $776 at the 3.4% interest rate, but at 6.8%, the interest would be $1,789 or an increase of $1,013. In Indiana, where the average loan size for 2011 was relatively low at $3,924, students would see an average increase in interest costs of about $772 over the life of the loan.
I wonder if the difference in the data depends upon the data pool ... $3,500 is the maximum a first-year student can borrow at the 3.4 percent interest rate under current law while $5,500 is the maximum amount that third- and fourth-year students can borrow at the 3.4 percent interest rate ... and does the data pool include historical data over the last decade when the maximum amounts being borrowed may have been lower ?
I guess my point is that everything is relative to your own situation ... My Father's favorite expression was the difference between a depression and a recession is in a recession, your neighbor is out of work while a depression is when you are out of work. If you rely on a Stafford Loan and need to borrow ... you will pay more ... and as I heard Republican Congressman Ted Poe expressing his support for the legislation, when car loans are available for zero to 3.9%, why should the Federal Government be increasing the rate.
Thus, an increase is an increase ... without this change, the rate would have gone up and there is no justification for that based on what can be earned on Treasury Bonds, so why should students and parents have higher interest rates.
Did you contact Mr. Martin, the White House, or John Kline for comment on the analysis before issuing the assessment that the DFL claim is inflated ? I listened to much of the House debate yesterday and no one questioned the $1000 claim ... and if it was only $384 then I would have thought that someone would have mentioned that.
Just curious, if you know the reasoning why the CBO report that you cited, takes the value from $3,450 to $2,933 next year ? Is the theory that if the rates are raised that less people will seek Stafford Loans .... and if so, does that explain the $3,450 figure since that may be an annual rate made up of higher loan activitity before July 1st when rates would be 3.4% and lower activity after the rate would be 6.8%. ?
A pivotal piece that is missing from this discussion is calculating the average TOTAL Stafford Loan debt students accrue over their four years of college, because students receive one Stafford Loan every year. Even if in the future the average Stafford Loan will be $3,000, most students will have four Stafford Loans--totaling $12,000. Regardless of which way you calculate the additional cost of the higher interest on the average Stafford Loan, that number needs to be multiplied by the number of years the student receives an annual Stafford Loan.
I looked up my old student loan information, and after receiving Stafford Loans for four years I had a total Stafford Loan debt of $16,125. I am dismayed that Stafford Loan funding is decreasing when the costs of college are skyrocketing, and I am disturbed that this discussion surrounding Stafford Loan interest rates fails to consider the full impact on students with multiple Stafford Loans.
After reading Laura's comment, I recall an earlier story.
The Washington Post has a story concerning student loans citing these figures :
Borrowers owe a median $12,800, an amount even advocates for student borrowers acknowledge is usually manageable and more than worthwhile factoring in the economic benefits of a college degree. However, not all borrowers complete a degree — and the average balance is considerably higher than the median: about $23,000.
By my math, that would mean that over a four year the amount borrowed would be $3,200 to almost $6,000 per year.
Thus, with ranges that wide, a significant number of people will pay more than the $1000 that the White House projects ... as states cut budgets and if the Republicans curtail Pell Grants, students and/or parents may seek loans and thus, far the House Republicans have only addressed this for one year ... leaving anyone thinking about higher education wondering if it is affordable.
Although the House may have rushed through some legislation before taking another week off, the problem still looms ... John Kline as Chairman of the Education and Workforce Committee must be questioned as to what he will advocate.
Just wanted to weigh in on some of the questions raised in the comments.
@mnphilliesfan: the interest rate increase in question does not apply to graduate Stafford loans. The only loans that would be affected are subsidized Stafford loans taken out by undergraduates. The higher interest rate would apply to loans taken out for this coming school year.
@Mac Hall: You asked if we contacted Martin or the White House. As you can see in the sources section, we did. The DFL pointed us to the White House web site. We spoke with the White House via email and phone, and they were not able to show us how they came up with the average amount of additional interest. So, we based the ruling on other publicly available sources.
On your question about the CBO report: The reason the average loan amount changes between FY12 and FY13 is because it is the first year graduate students will not be eligible for the loans.
@Laura: The reason we looked at annual numbers is because the extension the White House is seeking is only for one year. (Though many students take out multiple loans over their entire college career.)
Catharine, I understand that borrowers who no longer are students would not be affected. I am suggesting that much of the data collected refers to former students, who already are struggling - even with a lower interest rate. Many future borrowers are unlikely to complete their degrees - in part due to cost. New borrowers who cannot complete their degrees will have vastly increased repayment costs and little to show for it other than an unavoidable debt that is beyond the burden that today's graduates (and drop-outs) already bear. And Laura is correct as well - many students rely on Stafford loans annually. Even those new students who graduate with a degree and realize enhanced income potential as a result will see their overall repayment costs skyrocket. Long-term, it's an untenable proposition.