(Photo courtesy of CNET) “The current cumulative student loan debt in America totals over 1.6 trillion.”
Students hold over $1.7 trillion dollars in student loan debt in the second quarter of 2022 according to the Federal Reserves website. You may be wondering how the student loan debt became a crisis: There are many factors that contributed to it in the first place.
One of the factors that contributed to the student loan debt crisis is federal student loans. In 1958, Congress passed the National Defense Education Act. This act offered students scholarships and loans to go to college. Now, this is where the student loan debt crisis actually begins. While reading the act itself, it seems that there were interest rates on them which is mentioned on page 1584. In 2013, Congress made a change in how interest rates were determined on student loans which was to tie it to the yield on the 10-year Treasury notes.
The federal student loan program is a broken system because this is how it eventually became a crisis in today’s society. If it is going to be fixed, there needs to be massive reforms to it such as having just one type of federal student loans and not two. Additionally, interest rates should be applied once to the principal balance and not applied again. Congress should introduce legislation to not tie interest rates on student loans to the yield on the 10-year Treasury notes because the interest rates on student loans could fluctuate at any time based on the yield on the 10-year Treasury notes. If Congress still wants interest rates on federal student loans, they should set it at 2.5% or lower, and the Secretary of Treasury would have the authority to determine the interest rates on student loans every school year.
Pell Grant has barely caught up with the rising cost of higher education across America. The cost of higher education back in the 1960s vs. today has increased at a higher rate than expected. The solution for this is to increase the Pell Grant amount. There is a bill that was introduced in both chambers of Congress back in 2021 to increase the Pell Grant amount: Representative Mark Pocan introduced a bill that would increase the maximum Pell Grant by $1,000 each year starting with the 2023-2024 academic year until the 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 once again.
Colleges do play a part in the student loan debt crisis: this happens in two parts. When looking at a students financial aid package on the Student Information System (SiS), there is no indicator of interest rate on federal student loans at all. The current template that UMass Lowell uses for financial aid packages could be revised by adding another column titled “Interest Rates.” Alternatively, the financial aid office could send an email out to all students, regardless of if they have a student loan in their financial aid package, informing them on what the interest rates are and the source of where the information is coming from each school year.
The other part is that at the same time students are borrowing money for their degrees, colleges are also borrowing money for their capital projects. Capital projects are when a person or, in this case, colleges and universities across the United States want to improve their current capital assets. As one could assume, it costs a lot of money for such improvements. Universities like UMass Lowell borrow money to fund these capital projects that may be expensive. The way they pay back the debt they have incurred from borrowing money is by passing it down to the students.
The funding for higher education in- stitutions has not reached its previous levels since the recession that occurred in December 2007. According to CNBC, former President Regan cut funding for higher education and student aid: this is why the cost of college has gone up significantly. Once the recession happened in December 2007, states cut back on funding for higher education which made colleges to increase tuition to recoup the lost revenue that they were not receiving from the states. The obvious solution to this is to resume pre-recession funding for higher education institutions.Otherwise, colleges are going to continue to borrow money for capital projects and pass the cost down to students to pay for the debt incurred from borrowing money.
While these are just primary reasons student loan debt became a crisis in the first place, it is time for people in Congress and our statehouse in Massachusetts to solve the student loan debt crisis rather than putting politics over people.