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The Student Loan Problem

 

Senator Robert T. Stafford, Republican, Vermont

Originally published May 9, 2012

Okay, we don’t get it. How is it necessary to “fund” an interest rate? Economics give me a headache anyway, but this one is pushing for ulcer time.

We have and have had since 1965, a system for student loans call the Stafford program. It was renamed the Stafford Loan program in 1988 for my late senator, Robert T. Stafford, a Vermont Republican. Now, this is where things get hairy. In 2010, Congress eliminated the middle man, shifting Stafford from a government guaranteed program run by banks to a government program. It drastically cut the costs of student loans. But it was in 2007 that Congress passed a law cutting the interest rate for Stafford loans from 6.8% to 3.4%, a move that saves the students around $1,000 a year while they pay off those loans. The interest rate has to be extended because it runs out in July. So, why is it being held up over how it will be funded?

Here’s why – some jerk added an amendment to the bill that has nothing to do with student loan interest rates. According to the official summary, written by the Congressional Research Service, a nonpartisan arm of the Library of Congress, the bill also “Amends the Internal Revenue Code and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to require certain shareholders of a subchapter S corporation engaged as a partner in a professional service business to include income or loss attributable to such business in their net earnings from self-employment for employment tax purposes. Restricts such tax treatment to shareholders whose modified adjusted gross income exceeds a specified amount that varies based on their tax filing status. Defines a “professional service business” as any trade or business providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.”

That’s the part that has to be funded and that’s the part that caused the Republicans in the Senate to pull out the old filibuster and dump the bill in the hold bin. Student loan interest rates will go up unless the Democrats agree to fund this totally unrelated provision by cutting safety net funding.

I can think of a lot of words for the jerk who tacked this on the student loan bill and a lot more for those who filibustered it. None of them are printable on this site.

Here’s the bad news. Currently, student loan debt is at $867 billion, credit card debt is $704 billion and auto loan debt is $734 billion. In 2007, student loan default was at 6.7%. In 2009 it had grown to 8.9%. In 2007, credit card default was 3.8% and in 2009 it was 7%. Student loan default grew at a slower rate than credit card default over that period. For a bachelor’s degree, total student debt will range between $20,000 (public university) to $40,000 (private university.) For a master’s degree, add $22,000 to $36,000. For a law degree, figure a total of $135,000 in debt. A medical degree averages $270,000 on top of a bachelor’s degree. For contrast, the median income in America fell to $26,364 per year in 2011 and the median cost of a house is $212,000.

Our student loan system is in jeopardy because of a totally unrelated change to the tax code. If you want to save your student loans, write to your Democratic Congressperson, if you are fortunate enough to have one, and request the student loan interest rate bill be re-introduced without amendments. Only then can we see if the Republicans really believe that the interest rate extension should be passed.

Originally published May 9, 2012

Okay, we don’t get it. How is it necessary to “fund” an interest rate? Economics give me a headache anyway, but this one is pushing for ulcer time.

We have and have had since 1965, a system for student loans call the Stafford program. It was renamed the Stafford Loan program in 1988 for my late senator, Robert T. Stafford, a Vermont Republican. Now, this is where things get hairy. In 2010, Congress eliminated the middle man, shifting Stafford from a government guaranteed program run by banks to a government program. It drastically cut the costs of student loans. But it was in 2007 that Congress passed a law cutting the interest rate for Stafford loans from 6.8% to 3.4%, a move that saves the students around $1,000 a year while they pay off those loans. The interest rate has to be extended because it runs out in July. So, why is it being held up over how it will be funded?

Here’s why – some jerk added an amendment to the bill that has nothing to do with student loan interest rates. According to the official summary, written by the Congressional Research Service, a nonpartisan arm of the Library of Congress, the bill also “Amends the Internal Revenue Code and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to require certain shareholders of a subchapter S corporation engaged as a partner in a professional service business to include income or loss attributable to such business in their net earnings from self-employment for employment tax purposes. Restricts such tax treatment to shareholders whose modified adjusted gross income exceeds a specified amount that varies based on their tax filing status. Defines a “professional service business” as any trade or business providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.”

That’s the part that has to be funded and that’s the part that caused the Republicans in the Senate to pull out the old filibuster and dump the bill in the hold bin. Student loan interest rates will go up unless the Democrats agree to fund this totally unrelated provision by cutting safety net funding.

I can think of a lot of words for the jerk who tacked this on the student loan bill and a lot more for those who filibustered it. None of them are printable on this site.

Here’s the bad news. Currently, student loan debt is at $867 billion, credit card debt is $704 billion and auto loan debt is $734 billion. In 2007, student loan default was at 6.7%. In 2009 it had grown to 8.9%. In 2007, credit card default was 3.8% and in 2009 it was 7%. Student loan default grew at a slower rate than credit card default over that period. For a bachelor’s degree, total student debt will range between $20,000 (public university) to $40,000 (private university.) For a master’s degree, add $22,000 to $36,000. For a law degree, figure a total of $135,000 in debt. A medical degree averages $270,000 on top of a bachelor’s degree. For contrast, the median income in America fell to $26,364 per year in 2011 and the median cost of a house is $212,000.

Our student loan system is in jeopardy because of a totally unrelated change to the tax code. If you want to save your student loans, write to your Democratic Congressperson, if you are fortunate enough to have one, and request the student loan interest rate bill be re-introduced without amendments. Only then can we see if the Republicans really believe that the interest rate extension should be passed.

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