What’s not to love about graduation season? It is filled with senior send-offs, family get-togethers and free food.
But for more and more students and families, graduation season also marks the time to begin repaying loans that financed their education.
Student loan debt has become a hot national issue since news surfaced that it was hovering near – and eventually crossed – the $1 trillion mark this spring, and now Congress must act to prevent interest rates on subsidized Stafford loans from doubling from 3.4 percent July 1st.
Yet these outrages over the amount of overall student debt and the debate over interest rates miss a larger, more important point: Higher education has failed to help students and families responsibly finance a post-secondary education.
Nobody wants to see students fall deeper into debt, but the financial benefits of a lower interest rate on Stafford loans would not be overly significant. Even if rates doubled, students would pay just $6 a month extra for one year of loans, Mark Kantrowitz, publisher of the online sites FinAid and Fastweb and Lynn O’Shaughnessy, author and higher education journalist wrote in a New York Times op-ed May 9.
What the debate over the Stafford loan interest rate should focus on is the perpetual cycle of soaring tuition rates, easy credit and loans for students and families to pay for college that hopelessly leave them in tens of thousands of dollars of debt.
This has occurred in large part because loan providers such as the government have expanded loan opportunities and kept interest rates low for students and families. For example, the balance of federal student loans has increased by 60 percent over the past five years, according to the Department of Education.
Allowing the Stafford interest rate to remain lower would only continue this cycle of lower rates for families and incentives to secure loans, and would fail to send a message to loan providers, families and universities that the current system of “making college affordable” is broken.
All of the actors involved in higher education have helped create a scramble to achieve a post-secondary education, but have failed to control the process of securing funding and ignored the potential consequences of the current system.
Continuing tuition increases and a weak economy have caused almost one in 10 borrowers who began repayment in 2009 to default within two years – nearly double the rate in 2005, according to the Department of Education.
These harrowing figures do not mean a bachelor’s degree is not a smart financial investment. Yet this push to attend a four-year university, accompanied by competition between universities, a weak economy and soaring tuition has pushed many families to the brink of financial disaster.
What could George Washington U. do to change all of that, if anything? While Universities cannot control the loans private lenders or the government provide, they have a duty to serve as an honest broker with students and families.
And behaving responsibly means taking every step possible to ensure students and families make the best financial decisions.
The University has an enviable and generous financial aid program, but requiring students and families to meet individually with financial aid counselors to discuss the lending process and potential consequences can only have positive results. While there is a designated session for financial matters during Colonial Inauguration, mandating specialized meetings would guarantee students and families are making the smartest financial choices.
Colleges and universities must begin to do their part to ensure that students are financially literate and understand the consequences of their decisions. To make the community more economically savvy, the University should make a financial literacy course a graduation requirement for all students. This would be a step toward transparency and honesty.
So here’s to a graduation season filled with drinks, food and loan repayment plans.