Borrowing For College – We Won’t Get Fooled Again.

Posted July 25, 2013

The Senate voted yesterday to reduce student loan rates. From 6.8% to 3.86%.

Really. Haven’t we heard this one before?

Wasn’t it just a few weeks ago that the very same Senate allowed the rates to double to 6.8% (from 3.4%) in the first place? (That’s rhetorical, by the way — just like this new law).

I don’t know about you, but I’m getting a little tired of the ‘moving the deck chairs on the Titanic’ approach to addressing our mounting student debt crisis. While we’re busy re-wrapping the same proposals, student debt reached $1 Trillion dollars (on July 17). The average personal debt at graduation rose by another $1,000 per student (to $26,600) in 2011. And fewer colleges than ever reported their debt numbers this year.

So, you’ll have to forgive me for meeting yesterday’s ‘great news’ with a big yawn. It’s a circular argument and a distraction – one that is not only misleading, but costing average American families thousands. Here’s why.

First, this is a short-term win, popular among those up for re-election in the coming cycle. The ‘new’ rates expire in 2015 and then will rise with interest rates (maxing out at 8.5% for undergrads, 9.5% of graduate students and a whopping 10.5% for parents).

Second, it completely fails to truly isolate (and therefore solve) the problem. Loan rate reductions treat the symptom (after-the-fact), not the cause. For example, the average debt loads vary widely from campus to campus, ranging from $3,000 at some schools to $55,250 at others. The share of students graduating with loans ranged from 12 percent at some schools to 100 percent at others. Wouldn’t it be nice to have a real debate about why some schools consistently send students off with little or no debt while others regularly cripple their graduates with five and six figure debt upon graduation?

That’s important stuff to know — not just to inform our legislation — but as a parent (before your student applies to college). Student debt cannot be entirely attributable to higher tuition prices (as the popular rhetoric might have you believe). Colleges with higher costs sometimes have higher average debt, but there are many examples of high-cost colleges with low average debt, and vice versa. In fact a study last year on student indebtedness found that school generosity (financial aid policies and merit endowment programs) were better indicators than sticker prices of student debt loads.So, where do you find these generous schools, and how can you qualify for their assistance as a regular, middle class family AND avoid having to worry about the politics of loan rate debates in Washington? One place to start is with a list of the 60 most generous schools. You can click here to download my Resource Guide for a list of them, or you can come to one of my free classes.