USA: student debt again threatened to double interest

US senators have less than a month left to define subsidized loan rates, reserved for students at the start of the new academic year.

For the next twenty years of his life, Greg DubĂ©, a recent graduate of Northeastern University in Boston, will have to repay his five years of study. “I have to start repaying the principal of my loans six months after the end of my studies, I was already paying interest during my five years of study, but in November, I start paying back the capital,” says the young man. 23 years old, interviewed by AFP.

At least, it will escape the doubling of interests, which could come into effect at the beginning of July. Indeed, the subsidized rate of 3.4% for students is threatened to rise to 6.8% if Washington does not act. Without a new law, the seven million young people who will be borrowing this year from the federal state to finance their studies will be burdened by an even greater debt.

In the United States, the first cycle of studies (bachelor) generally lasts four years and tuition costs from $ 2,000 to $ 40,000 per year depending on the institution, including scholarships. Two out of three students finish their studies in debt, according to the annual report of the Institute for College Access and Success: an average of $ 26,600 for graduates in 2011.

BRINKMANSHIP

In 2012, US parliamentarians voted to freeze rates in extremis, just two days before their planned increase. This year, they still seem ready to use the tightrope strategy. The stakes go beyond the students’ wallet and should make it one of the hot political issues of the month of June.

For student debt now weighs nearly $ 1 trillion, according to the New York Federal Reserve, more than the total debt of US credit cards. The registration fee has exploded: + 7.45% per annum on average since 1980, when the average inflation rate only reached 3.8%. After mortgages, it is the second largest source of indebtedness in the United States.

On Twitter, the keyword #DontDoubleMyRate, launched by Barack Obama during the campaign for his reelection in 2012, is back in force. Few Americans do not feel concerned. Barack and Michelle Obama did not repay their student loans … until 2004. In total, 37 million Americans are currently repaying student loans.

“BECOME THE ENGINES OF ECONOMIC GROWTH”

For advocates of low-interest rates, it is imperative to maintain a favorable rate for those who are preparing to enter the labor market. “Loans must remain affordable and young people can finance their education because then they will be able to buy a house, a car and become engines of economic growth,” said Anne Johnson of the think-tank Center for American Progress.

These loans are no longer granted by the banks, for the most part, but directly by the federal government, at a rate defined by law: 3.4% since 2011 for self-employed students, subject to the means test (6.8 % for others and parents). But that rate will expire after July 1.

Republicans and President Barack Obama want to see the rate of future borrowings backed by key rates, now exceptionally low, but the formula preferred by Republicans leads to a higher rate (5% in 2014, according to an estimate of the Bureau of the Congress budget) than in the White House version (3.4% in 2014).

FIXED RATE AGAINST VARIABLE RATES

Another big difference: in the scenario stamped Obama, the loan rate, once granted, would remain fixed until the last refund, ten or twenty years later- Artinsound payday loan reviews. Republicans, they prefer that it is recalculated each year, which would allow young workers to benefit from a possible rate cut, but also expose them to an increase in their monthly payments otherwise.

“It’s not smart,” Barack Obama criticized in a White House speech on Friday, “It’s not good enough for low-income families, it’s not fair.”

After the House of Representatives’ adoption of the Republican version of the reform on May 23, the June debates will be concentrated in the Senate, controlled by the Democratic allies of the president. They have less than a month to define the rates for the next academic year.