By Sen. Tim Johnson (D-SD)
We saw the movie last summer on the threat of raising federal student loan interest rates, and it had a happy ending when Congress acted to prevent it. This summer, the interest rate sequel is showing, and the ending is uncertain. On July 1, interest rates on new federal student loans are once again set to double.
This would hit South Dakota students and families hard. Without congressional action, nearly 35,000 students in South Dakota will rack up an extra $1,000 in student loan debt next year from increased interest costs. At a time when too many students are already graduating with enormous debt loads, it makes no sense to make it harder for students to finance their education and manage their debt.
Increasing numbers of students are finishing their education with crushing student loan debt loads. Others are reluctant to pursue college and career training due to a lack of financial resources. Incredibly, student loan debt now exceeds $1 trillion. Americans now owe more in student loans than credit card debt. This creates financial hardship for young people just as they are beginning their careers. It can also create a barrier for young people who want to start a family, buy their first car or become a homeowner, which could hinder our economic recovery.
Last spring, I sat down with students from Southeast Technical Institute in Sioux Falls to talk about what a doubling interest rate would mean for them. They told me a rate hike would make it harder for them to complete their schooling and would likely deter students from pursuing their education goals. In recent months, I have received an outpouring of letters, emails, and phone calls from young people and parents across South Dakota about the need to prevent interest rates from doubling on July 1.
The Senate is poised to vote on legislation that I have cosponsored: the Student Loan Affordability Act. This legislation would extend for an additional two years the current 3.4% interest rate on federal student loans. The bill is fully paid for through closing several existing tax loopholes. This extension would give Congress time to review policy options that have been proposed to overhaul our federal student aid programs and rein in tuition costs that dramatically outpace the rate of inflation.
The House of Representatives has taken a different approach by passing legislation that would force student borrowers to pay more than if Congress failed to act by July 1. The legislation fails to lock in low rates and could submit students and parents to higher fluctuating interest rates.
Making smart investments in South Dakota and our nation’s students is critical to our continued economic competitiveness. Helping students attain a post-secondary education is not only a good investment in their future, but also a worthwhile investment in ensuring that America remains competitive in the world economy.
I welcome a debate that looks at reforming our federal student loan programs over the long-term. But time is running out for today’s students in South Dakota and around the country. Let’s give this summer’s interest rate movie sequel a happy ending. Congress should take immediate action to prevent the interest rates from doubling on July 1.