(Photo courtesy of CNET) “Today’s cumulative student loan debt in America is over $1.6 trillion.”
Diep of Qinglong
Students hold more than $1.7 trillion in student loan debt as of the second quarter of 2022 according to the Federal Reserve website. You might be wondering how student loan debt became a crisis: Many factors contributed to it in the first place.
Federal student loans are one of the contributing factors to the student debt crisis. In 1958, Congress passed the National Defense Education Act. This law provided students with scholarships and loans to attend university. Now, this is where the student debt crisis really begins. Reading the law itself, it seems there were interest rates on them, which is mentioned on page 1584. In 2013, Congress changed the way interest rates were determined on student loans, which was to tie it to the yield on the 10-year treasury bill.
The federal student loan program is a broken system because that’s how it finally became a crisis in today’s society. If this is to be fixed, there must be massive reforms, like having only one type of federal student loans and not two. Also, interest rates should be applied once to the principal balance and not applied again. Congress should introduce legislation not to tie student loan interest rates to the yield of 10-year Treasury bills, as student loan interest rates could fluctuate at any time depending on the yield of the bonds. of the Treasury at 10 years. If Congress still wants federal student loan interest rates, it should set it at 2.5% or lower, and the Secretary of the Treasury would have the power to set student loan interest rates each school year. .
Pell Grant has barely caught up with the rising cost of higher education across America. The cost of higher education in the 1960s compared to today rose at a higher rate than expected. The solution is to increase the amount of the Pell grant. There is a bill that has been introduced in both houses of Congress in 2021 to increase the amount of the Pell Grant: Rep. Mark Pocan introduced a bill that would increase the maximum Pell Grant by $1,000 each year starting in the 2023-2024 academic year through 2027-2028 for it to reach $13,000. After the 2027-2028 school year, it would only be $13,000 unless someone else introduces legislation to increase it again.
Colleges play a role in the student debt crisis: it happens in two stages. When you review a student financial aid program on the Student Information System (SiS), there is no federal student loan interest rate indicator. The current model used by UMass Lowell for financial aid programs could be overhauled by adding another column titled “Interest Rate.” Alternatively, the financial aid office could email all students, whether or not they have a student loan in their financial aid program, advising them of interest rates and the source from where. information comes from each school year. .
The other part is that along with students borrowing money for their degrees, colleges are also borrowing money for their capital projects. Capital projects take place when a person or, in this case, colleges and universities across the United States want to improve their current capital assets. As one might assume, it costs a lot of money for such upgrades. Universities like UMass Lowell borrow money to fund these capital projects which can be costly. The way they pay off the debt they incurred by borrowing money is to pass it on to the students.
Funding for higher education institutions has not reached previous levels since the recession that hit in December 2007. According to CNBC, former President Regan cut higher education funding and student aid: is why the cost of college education has increased dramatically. . After the recession hit in December 2007, states cut funding for higher education, forcing colleges to raise tuition to recoup lost revenue they were not receiving from states. The obvious solution to this is to resume pre-recession funding for higher education institutions. Otherwise, colleges will continue to borrow money for capital projects and pass the cost on to students to pay off debt incurred by borrowing money.
While these are just the main reasons why student loan debt became a crisis in the first place, it’s time for people in Congress and our state of Massachusetts to solve the student loan debt crisis rather than put politics above people.