MADISON, Wis. — With time running out for over 159,000 Wisconsin college students and their families whose student loan interest rates could double in less than one month, the U.S. Senate today considered competing plans for setting interest rates on federal Stafford Loans. According to One Wisconsin Now Executive Director Scot Ross a doubling of interest rates on student loans is a ticking time bomb not just for students and their families, but the entire economy.
He commented, “The trillion-dollar student loan debt crisis is a clear and present danger to our economy nationally and in Wisconsin. Allowing interest rates on federal student loan rates to double only deepens a crisis that is already hurting students, their families and our entire economy.”
The Republican plan offered today would have lifted the cap on federal student loans, instead allowing variable rates, and is estimated to cost students nearly $15.6 billion over the next ten years in additional interest costs. Under current law, it is projected that the federal government will earn a profit of $51 billion in the next year from the interest on federal student loans, even more than the net profit reported last year by Exxon Mobil, the most profitable corporation in the country. The GOP plan failed to pass, garnering 40 votes including Wisconsin Senator Ron Johnson’s.
By contrast, a Democratic plan, cosponsored by Wisconsin Senator Tammy Baldwin, would close a number of corporate tax loopholes to maintain an interest rate cap of 3.4% on federal student loans for the next two years. Baldwin joined with 50 of her colleagues in supporting the initiative. Senator Johnson voted no on the measure, helping deny the 60 votes necessary for the Senate to move on to an up or down vote on the measure.
Ross commented, “It is obscene that the federal government is earning more than Exxon Mobil from students struggling to afford a higher education, and that they and their families are saddled with over one-trillion dollars of debt. And it is unconscionable that Senators like Ron Johnson voted to let it get worse.”
Original research conducted by the One Wisconsin Institute found that student loan debt’s impact is not confined to students and their families, but is a significant drag on the entire Wisconsin state economy with:
- Graduates with Bachelor degrees reporting making average monthly payments of $350 for an average term of 18.7 years;
- Those attending technical college or earning Associate degrees reporting monthly payments of $288 for a term of 16.8 years;
- Economy-wide detrimental impacts of this debt including over $200 million in lost new auto sales every year; and
- Significantly lower rates of home purchasing and ownership among graduates earning solid middle class incomes but saddled with student loan debt.
The Institute’s research was recently confirmed in the Federal Reserve Bank of New York’s survey of consumer debt that found student loan debt negatively impacted the ability of individuals to finance auto and home purchases. In addition, The U.S. Federal Reserve has identified rising levels of student loan debt as a risk to economic recovery.
Ross concluded, “The trillion dollar student loan debt crisis is a ticking time bomb for our economy that must be defused before it explodes into a two trillion dollar crisis.”