Now that Daughter No. 3 has graduated from college, maybe we’ll have a little money for our old age. Or maybe not.
We managed to get through our youngest’s four years without borrowing, but we essentially bought our house again to get the two older girls through at the same time.
A few weeks back I checked on the outstanding balance of the PLUS loans we have been paying on for a decade and I was horrified to find that the principal had only been reduced by a few thousand dollars. Everything we pay each month seems to go to interest. At this rate I will not live long enough to see those college loans paid off.
The cost of a college education has gone off the charts since I was in school. Back when I graduated from high school in 1967, it cost about $3,000 a year to go to Bowdoin College and we couldn’t even afford that much. Now it costs more than $50,000 a year, though colleges with significant endowments can afford to buy down the price with grants. We paid about half price at Bowdoin and Smith College, but Rhode Island School of Design has precious little scholarship and grant aid, so we were forced to cover the full cost minus a few Stafford loans for Daughter No. 1.
Having now helped put three children through college, there are a few bits of wisdom I can impart from my experience.
First, some of the most expensive colleges turn out to be the best deals if you qualify for financial aid. But just because you qualify for financial aid doesn’t mean you are going to get any if the college doesn’t have any money. And if you have been financially responsible and saved for your child’s education, your savings will just be deducted from your financial aid award. The government will loan you all the money you need for your child’s college education, but you’ll be paying back those PLUS loans the rest of your natural life.
College loan programs have been in the news lately as the latest example of Congressional gridlock and brinksmanship. On July 1, rates for new loans doubled from 3.4 percent to 6.8 percent because Republicans and Democrats could not agree on whether to set a new fixed rate or opt for a variable. What no news story that I could find ever explained, however, is why the loan rates doubled in the first place. The answer was that Congress had reduced the rate over a five-year period starting in 2007, and the old rate was simply set to go back into effect without a new plan.
In other words, like sequestration, doubling student loan rates was a problem of Congress’s own making, totally arbitrary and totally unnecessary. There was no economic reason why the rates needed to increase. Thanks to Sen. Angus King, I-Maine, for helping to straighten things out a bit, but even the caps on the compromise rates that he helped broker don’t do anyone any real favors: 8.25 percent on undergraduate loans, 9.5 percent on graduate student loans and 10.5 percent on parent PLUS loans.
There is no good reason why the government should be making money on subsidized student loans. Currently, student loan repayments contribute $51 billion a year to government coffers. Student loan subsidies should be a break-even business.
Sen. Elizabeth Warren, D-Massachusetts, proposed giving students the same loan rates that the Federal Reserve gives to big banks, 0.75 percent. There is no reason other than greed why students should be graduating with an average of $24,000 in loan debt.
The over-inflated cost of a college education is a national disgrace to begin with, but the injustices of the student loan market – exorbitant interest rates, no consumer control over who owns your loan, for-profit schools that essentially exist to make money off government loans by putting their students deep into debt – just make a bad situation worse. That said, I’m not sure how we could have afforded a half million dollars in college educations without help from government-subsidized loans.