By Jessica Kelmon, Associate Editor
There are a few crucial moments in life when I’ve wished someone – my sister, a friend, even a magazine article – would’ve warned me about the bumpy road ahead. Like how difficult it can be to leave college and join the working world. Or how much I’d freak out about turning 30.
But now it’s my turn to help. I’ve traveled the bumpy road of student loans since 1998. And the road has only become bumpier. My journalism school loans are all I have left – but they’re the worst ones yet.
Why is this pertinent? Because no one seems to really understand the hullabaloo over Pell grants and the congressional vote that will decide the fate of interest rates for new subsidized Stafford loans for 2012-2013 – but GreatSchools parents are exactly the people that need to get this. Whatever happens, it won’t help me. I am among the masses making up that trillion dollars in student loan debt. And my Stafford loan interest rates, both subsidized and unsubsidized, are already at 6.8% – as they always have been.
The problem is, people like me, who are sweating their student loan payments (I pay $1,000 per month), are highly attuned to this news. But I think we’re the only ones reading it. And make no mistake: if your child’s in 3rd-12th grade, you’re the ones who should care, because any real change will take time to enact and will likely start with the impending vote over subsidized Stafford loan interest rates for 2012-2013. Your family stands to benefit – or not.
Student loan debt adds up
Here’s my simple breakdown so you can decide for yourself:
• Average college tuition, room, and board in 2009–10 was $12,804 (public) and $32,184 (private) per year. Using the public school average, four years of public college is $51,216. (Read about many kids taking up to 6 years to graduate due to required remedial classes.)
• Pell grants aren’t available to everyone and max out at $5,550 per year (proposed increase for 2012-2013 is $5,855). The average grant for 2011-2012, however, was $3,984. Best case scenario, your kid gets the max each year, and is still on the hook for $27,796.
• Subsidized Stafford loans: you can get a total of $23,000 over the course of your college education, but it’s not just given to you all at once. It’s capped each year at $3,500 for freshmen, $4,500 for sophomores, and $5,500 each subsequent year till you hit the cap of $23,000. In this scenario, that’s $19,000 in subsidized loans. Plus the remaining balance of $8,796 that’ll have to be covered, too, most likely with loans with less attractive interest rates (and typically terms, too).
Focus on student loan interest rates
Around that first bullet point, many people’s eyes glaze over. But the difference between what your child will pay on that $19K with interest rates at 3.4% and 6.8% is huge. At 3.4% interest for 10 years, it’s an extra $3,439.33; but at 6.8% it’s an additional $7,238.32. Just in interest.
In my opinion, all student loans – whether they’re subsidized or not – should have interest rate caps. Here’s why: student loans can’t be dispensed in bankruptcy and lenders are basically guaranteed to get their money back from the U.S. government. So the lenders still come out on top, just not quite as high, and higher education would be more affordable. So why isn’t Congress enacting caps on interest rates for all student loans?
Probably because being a student lender is very good business, and they aim to keep it that way. Some fun facts about the top five student lenders: Sallie Mae, Wells Fargo, Discover, Nelnet, and JPMorgan Chase, as reported by AlterNet’s Sarah Jaffe. Discover’s vice president for U.S. cards told the crowd at a student lending conference, "We really like this business…” What’s not to like? They are doing quite well on student loans. In 2008, Sallie Mae’s CEO Albert Lord received $4.7 million in total compensation. Apparently, he built himself a private golf course. Nelnet services $44.6 billion in student loans for 3 million borrowers. Their cut? $12.8 million in a single quarter. To keep themselves in this lucrative business, the big lenders spend a lot on lobbying. JPMorgan Chase, for example, spent $5.8 million on lobbyists in a single year. Against that kind of lobbying, it’ll be hard to make things change.
In the meantime the first serious step toward widespread reform involves capping the subsidized Stafford loan and saving at least some of your child's future earnings. President Obama’s been trying to get people’s attention; he’s even pulling out his lounge act. He “slow jammed the news” on Jimmy Kimmel (worth watching, embedded below) to try to raise awareness.
In the end helping kids pay for college isn't a hand out. It's good for all of us. Research from Georgetown University shows that by 2018, 60% of jobs will require postsecondary education. According to research by GreatSchools board member Eric Hanushek, educational attainment in the U.S. is directly related to our GDP – and as cognitive skills and education levels go up, so will the GDP. If that's not a compelling equation for change, I don't know what is.