Can you believe that both agree!?! Yes, it might be really cold and someplace is freezing over, but President Barack Obama and Mitt Romney both agree that student loan interest rates should not be increased. This would keep current interest rates at 3.4%, not raising them to 6.8% on July 1st. By not increasing the rate on student loan interest rates, the government is stating that it will “cost” $5.9 billion.
Woo, wait just a minute-- did anyone question that figure? Being an old banker, we tried to have a 3%-4% spread on money; the cost of deposits verses the cost of loans to make money. The government can borrow money (cost of deposits) at almost zero percent, yet they are charging 3.4%. Even the ten-year treasury is at 2%. Not a bad positive spread. I also just financed a new car for 60 months at 1.9% at my local credit union. Why is the government charging so much on student loan interest and want to raise it even higher?
I know, the “cost” of $5.9 billion is really forgone profit if rates were higher. Yes, I am very bias towards higher education and feel that this is the way we can recover from our recession and the only way to continue to be a leader in the world. China, India and other countries are catching up or have caught up in technology and education. We need an educated nation to survive and thrive in the future.
According to the Federal Reserve Bank in New York, it estimates that about 15 percent of Americans (not students) have outstanding student loan debt totaling $870 billion. Other estimate student loan amounts as high as $1 trillion ($1,000,000,000,000.00) Yes that is a lot of zeros! This amount exceeds the total borrowed on credit cards and auto loans according to the New York Times. Two thirds of the student loan debt is held by people under 30. The average 2011 graduated walked across the stage with over $25,500 in student loan debt. Is this our next housing bubble that will put us in another recession?
How do student loans affect students? Living back with parents, not buying houses, cars, delaying marriage, and the list goes on. If we truly believe that education is an investment and benefits society as a whole, as well as the individual, we need to keep it affordable and attainable. Here is a short, fun little video about the effects of STDs (STudent loan Debts) Enjoy the video; don't play the lottery.