Erika Wilhite and Moria Dailey
Published: January 25, 2006
On December 21, 2005, the Senate voted to take $12.7 billion dollars out of the student loan program, the largest single cut in the program’s history. Rather than cutting lender subsidies, thereby minimizing the impact on students themselves, the bill will generate around 70 percent of its savings by raising the interest rates for borrowers from 7.9 percent to 8.5 percent.
Although the bill’s ultimate effects are still unclear, there’s no doubt that it will increase the debt carried by students and parents borrowers. According to the State PIRG’s Higher Education Project, 64 percent of all students take out loans to pay for college, and the average student takes out nearly $20,000 worth of student loan debt to pay for an undergraduate degree, so an increase of .6 percent on the interest rate won’t go unnoticed.
The increase will, of course, have a greater impact on low-income individuals and families, while the effect on the middle and upper-middle class could be negligible.
“Depending on the program that you’re doing in which you have to take out loans, the amount can seem much worse from one person to another” said Tom Delaino, PJC’s President. “Doctors have nothing to worry about because their income is high enough to cover the loan cost, while someone in the LPN program isn’t going to be making as much money.
Larry Bracken, PJC’s Executive Director of Government Relations, agreed, and said he believes that although the new bill will certainly “affect students with no other choices [beyond loans]”, students have “many other forms of financial aid available, such as Pell Grants, state funded grants, [and] private scholarships.”
Bracken said that students “turn to loans far too easily”, viewing them as a “quick and easy” method of paying for tuition, “but they don’t think about having to pay them back.”
“We’re concerned with the amount of loans our students are going to come out with,” said Delaino. “We’re one of the few institutions that have a loan cap. A loan cap is a set amount of loan money students at PJC can borrow, and once that [limit] is reached the college doesn’t allow the student to borrow anymore money.”
The college currently limits freshman to $2,625 and sophomores to $3,500 in subsidized loans, and according to Karen Kessler, Coordinator for Financial Aid and Veteran’s Affairs, PJC works with students wishing to borrow more than that amount on a “case by case” basis. Also, the recommended total borrowing limit is $1,200, because, said Kessler, “amounts greater than that cause students.to have less than the needed eligibility when they transfer to complete their upper division degrees, [where] the costs of tuition and fees more than doubles and often triples after the transfer degree is completed and the student matriculates at a college or university where they may also loose the ability to cut costs by living at home with parents.”
Kessler added that the current interest rates for the Federal Family Education Loan Program (currently 4.7 percent) and Parent Plus are “much more affordable than the interest rates on credit cards, which cannot be deferred.”
While the bill will likely induce an added amount of financial strain for many students, there is little indication that the higher interest rates will further decrease enrollment at PJC.
“I don’t think the rise in interest rates will deter [students],” said Kessler, who also pointed out that “the current rates are rising to the levels they were back in 1996-2000.”