Interest rates on new federal student loans will rise effective July 1. The current interest rate, 3.73% will creep up more than 1.25% to 4.99% for 2022-2023 loans. Loans for graduate students will carry an interest rate of 6.54% and PLUS loans (for parents) will have a 7.54% interest rate.
Rising interest rates are significant, because the cost of a $5,500 student loan (the maximum amount available) will cost the borrower about $7,000 to repay assuming the standard 10-year repayment plan. That represents an overall 27.2% increase in the cost of attendance when factoring in student loan debt. The increase makes it much harder for some graduates to achieve an adequate return-on-investment.
The increased cost burden lands more heavily on students from middle-income households. Even though students from low-income families are more likely to save for college expenses, they are less likely to have adequate resources to fund a college education. Interestingly, a 2013 University of Michigan study demonstrated that children from low- and middle-income homes who had small-dollar college savings accounts were three times more likely to enroll in college and four time more likely to graduate than children from higher income homes who did not have a college savings account. This effect was most pronounced for children from Black households.
The rising cost of federal (and private) student loans makes loans untenable as a long-term education financing option. High-cost parent loans don’t add value, especially when parents have multiple children; are repaying their own student loans; or are saving for retirement. Increasingly, would-be students forgo enrollment for cost reasons.
College savings, not student loans are the key to increasing enrollment
Statistically, about 60% of students who enroll in college before the age of 20 graduate within 5 years. Only about 30% of people who enroll in college for the first time at age 20 or later are likely to graduate in 5 years. That number drops to 20% when students enroll in college for the first time at age 24 or later. One in six students over the age of 30 will graduate in 5 years.
Therefore, it is so disturbing to hear community college Trustees agree that increasing tuition and fees is the ideal way to fund campus construction projects and the overwhelming cost of administrative bloat. The community college serves students from low- and middle-income households; women and minorities; single parents; and adult learners who are trying to reskill or change careers (not usually voluntarily). The majority of WCC students are economically disadvantaged in some way. Raising the cost of attendance while simultaneously reducing the value of WCC’s academic programs is a good way to ensure continued enrollment declines.
We need better Trustees.
Photo Credit: Marco Verch, via Flickr