The interest rates for federally subsidized Stafford student loans are scheduled to double on July 1, from 3.4 to 6.8 percent, unless Congress acts.
And given Thursday's action in the Senate, when both a Democratic plan and a Republican one were defeated, and given the fact that Congress couldn't even avoid sequestration earlier this year, it seems highly unlikely anything will get done.
Still, we encourage our senators - Tammy Baldwin and Ron Johnson - and representatives, including Reid Ribble, to not let the partisan gridlock of Congress make higher education the territory of the rich or the extremely indebted.
There are solutions out there. There are ones we like, such as one from Sen. Elizabeth Warren, D-Mass., who proposes cutting rates to 0.75 percent, which is the amount banks pay the Federal Reserve for short-term loans. And there are ones we don't like, such as the House Republican plan that would tie interest rates to the market rate and add 2.5 percent, leading to variable rates that could hit 7.4 percent by 2017 and continue to rise after that.
If Congress isn't willing to go the Warren route, then there must be something in between those two extremes.
Or stick with the current 3.4 percent rate for two years while Congress works on a student loan overhaul. Given the time left before July 1, that seems the more likely option, however, Congress has done nothing lately that inspires any confidence a solution would be in hand within two years.
It was only a year ago that Congress extended the 3.4 percent rate after the 2007 college affordability plan expired. And here we are, less than a month from a deadline that will make college more expensive and hit middle class and low-income students hardest, and Congress has yet to make any real progress.
The loans in question are federally subsidized Stafford loans, which go to undergraduates based on need. These are the very students who don't have the money to fund their own education and rely on student aid; 68 percent come from families with annual incomes of less than $50,000. In Wisconsin, 159,147 will face an increase of $915 in costs per loan per year.
Approximately 38 million students nationwide have student loan debt of about $1 trillion, eclipsing credit cards and trailing only mortgages as the highest form of consumer debt. According to the Federal Reserve Bank of New York, student loan debt has quadrupled in the last 10 years while the cost of higher education has increased at a rate greater than that of inflation. Granted, the number of students borrowing money has increased from 23.3 million in 2005 to 38.8 million in 2012, but so has the debt they have incurred.
On average, students who take out loans for four years owe more than $26,000.
With high interest rates on those loans, these new graduates will find it difficult to buy vehicles or houses, fund their retirements, or purchase other goods and services that all help spur our economy.
Some say the 6.8 percent interest rate would be fixed and end the unpredictability of those rates, but that's of little comfort to a newly minted graduate trying to pay back loans while earning a new graduate salary.
These days, higher education degrees are needed for more jobs. Manufacturers more and more are looking for students with at least a two-year associate's degree. They talk about the skills gap as they are unable to find workers with the abilities needed for the job. By 2020, 64 percent of all jobs in Wisconsin will require a bachelor's degree or certificate, according to the consumer advocate group Wisconsin Public Interest Research Group.
WISPIRG also estimated that by holding the interest rate at 3.4 percent, "the $145 million saved by students could be spent in Wisconsin's consumer economy" instead of on student debt.
So who benefits from the loan hike? The federal government would get a huge boost. It is expected to collect 12.5 cents for each dollar loaned in 2013-14, which translates into $50 billion. But that's not the path this country should go down. It would be trading future training, knowledge, expertise and prosperity to fix financial problems Congress has been too gridlocked or gutless to address until now.
We call on the Wisconsin delegation to keep the student loan interest rate low. An educated populace is crucial to the nation's long-term health, and saddling new graduates with tons of debt to benefit the government is not the answer.