The plan presented during the Senate meetings earlier this year by Sens. Tom Coburn (R-OK.), Richard Burr (R-NC) , Angus King (I-Maine) and Joe Manchin (D-WV) is far from a good plan. It proposes linking student loan interest rates to 10-year Treasury notes and adding another 2% for undergraduate Stafford loans, 4.5% for parent PLUS loans and 3.5% for graduate Stafford loans. This plan would more than double current student loan interest rates and it’s flawed, at best.
Three fundamental issues are found within this plan including amortization, cost and duration. The government isn’t very transparent about the way they handle these three issues and they want borrowers to feel like they are getting a great deal However, what really happens is students graduate with a massive amount of debt. When they pay it back, the government makes a HUGE profit.
This is one of the major reasons why young college graduates struggle with their credit. They can only put student loans into deferment and forbearance for so long before they either default or start paying them back. If they cannot secure a job that pays well, after graduating, this can ruin their credit in a hurry.
Unlike many other countries in our world, the United States would rather students graduate with debts the size of a mortgage and nothing but a degree, which will barely get their foot in the door at a company, to show for it. Many other countries pay for or at least pay for a portion of the education of their college-aged citizens.
With this hike in rates, the government is sure to make more money, while the next generation of students suffers. It’s hard enough to get ahead in this world and start your adult life with good credit. This plan only makes it harder.