The $1 trillion student loan crisis will be a top priority for President Obama and senior administration officials this week. The president will discuss ways to prevent undergraduate subsidized loans from doubling July 1 with student government leaders from across the country on Monday. Vice President Biden meets with students and higher education representatives about the skyrocketing costs of college later in the week and several high-ranking members of the Cabinet including Secretary of Labor Hilda Solis are expected to weigh in on the issue at various events planned by the administration.
The costs of attending college and the amount of outstanding student loan debt have become key issues in this election season. Both Obama and presumptive Republican presidential nominee Mitt Romney agree that the interest rate on government subsidized Stafford student loans should be extended for one more year. The 3.4 percent rate, which only applies to new student loans, was temporarily lowered in 2007 but will increase to 6.8 percent in less than two months. It costs the federal government about $6 billion a year to subsidize the interest rate. More than seven million students benefited from the reduced rate in the 2010-2011 school year and they could face an additional $2,800 in interest if the rate doubles.
Republicans have come under intense pressure to agree to a rate extension. Last month the House voted on a bill that would keep the rate unchanged for one more year and use savings from cuts to Obama's Affordable Care Act to pay for the subsidy. The bill will likely fail in the Democratic-controlled Senate and President Obama has already issued a veto threat. Democrats will vote May 8 on their bill that would extend Stafford loan rates by closing a tax loophole on wealthy Americans.
William Bennett, the U.S. Secretary of Education from 1985 to 1988 and the author of "The Book of Man: Readings on the Path to Manhood" spoke with The Daily Ticker's Aaron Task at the Milken Institute Global Conference in Los Angeles. Bennett agrees that government student loans should remain low — but just for a certain segment of the population. He says the government should stop subsiding the cost of college for middle class families and continue funding the loans given to poor and lower-income households. Bennett also says that artificially low student loan rates give colleges and universities perverse incentives.
"If we keep interest rates low, will colleges reciprocate and by keeping tuition low?" he asks. There has been a "400 percent increase over the last 25 years in college tuition. Why spend $60,000, $80,000, $100,000 to go to school if [students] can't find a job in their field."
Student loan debt has topped the $1 trillion mark, surpassing the total amount of credit card and auto loan debt in this country. Students in the 2010 graduating class owed an average of $25,250 according to the Institute for College Access & Success. Nearly two-thirds of students at four-year universities take out loans to pay for school, according to FinAid.org.
"When you think about what that does to people's motivation, what it does to their decisions, when they defer because they owe that kind of money, changes people's lives," Bennett says. "I think higher education will be the next bubble."