A new threat to economic recovery is on the horizon — and Congress has less than two months to act to avert it. On July 1, student loan rates for almost 8 million Americans, including 303,000 in Michigan, will double.
First, some background. In 2007, Congress, with bipartisan support, reduced the rate on subsidized Stafford loans incrementally over four academic years, from 6.8 percent at the time to the current rate of 3.4 percent.
That rate is scheduled to double on July 1 unless Congress acts. There are several reasons why doubling the interest rate would be bad for Michigan's economy and bad for millions of college students and their parents.
First, the $1 trillion in student debt held by tens of millions of Americans is dragging down the country's housing market. Why? Because fewer and fewer young people can qualify for mortgages in order to buy homes.
According to a recent Federal Reserve study, only 9 percent of 29- to 34-year-olds got a first-time mortgage from 2009 to 2011, compared with 17 percent 10 years ago. So what happens when fewer people buy homes? Fewer construction jobs are created. And what happens when fewer construction jobs are created? It causes a ripple effect throughout the economy.
It's not just construction workers who are harmed, but the folks making the carpets, the truckers hauling the lumber, the millwork employees, the door manufacturers, the furniture and appliance workers.
But let's take a look at the bigger picture. It is in our nation's long-term economic interest to make college more affordable, not less. Right now, the Bureau of Labor Statistics reports that there are 3.5 million job openings in the country, even as the pool of potential applicants is huge — 12.7 million Americans are officially unemployed.
In manufacturing, 600,000 jobs are unfilled due to a lack of skilled labor. Half of the fastest-growing occupations in the country require an associate's degree or higher. Keeping the interest rate low on student loans will send the urgent message to students, workers and the unemployed to get the post-secondary training necessary to adapt to new economic realities.
We could go farther. We could decide, for example, to reform our tax system by ending the tax cuts for the wealthiest 1 percent of Americans and use the revenue to cut college tuition in half for every college student in the country.
Unfortunately, Congress has regressed when it comes to making college more affordable. Three years ago, strong, bipartisan support existed for helping students and working-class parents. Not so today. The U.S. House of Representatives is not only threatening to defeat this modest measure to keep that Stafford loan rate at 3.4 percent — it even has passed a budget that would cut Pell Grants for more than a million students over the next decade.
We can and must do better. Too much is at stake, for Michigan's economy and for the next generation of America's workers.
About the author: Linda Teeter served as a Legislative Aide to former Michigan Representative Mary Brown for over 10 years, and has served in her current capacity with Michigan Citizen Action since 1995. She is a former three-term, Kalamazoo City Commissioner.
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