Student loan interest rate jumps from 3.8 to 6.8 percent

As overall student loan debt in United states reaches a staggering $1 trillion( that is 1 with 12 Zero). Average American student now owes about $28,000 USD in student loans. This is quite a huge amount. It is more than Obama’s package for kick starting economy. It is more than total debt on all credit cards issued in U.S. It is even more than amount of mortgages owed to bank be every citizen.

This could be our next financial crisis. It can be a bubble that can bust whatever economic recovery we have made so far. Tax payers can see more of their money go down the drain pretty soon.

Job market data, that has emerged over the past few months is also not very promising. Having more college graduates jobless means they will not be paying off the loans. Some students are even going back to college to acquire new skills to compete in changing job market. This is adding to their total debt burden too.

Stafford is the largest network of federally subsidized loans. It issue loans to cover college tuition fees and other education related expenses for students from middle class. It has so far issued loans to 7.8 million students.

An average student borrows $25,000 USD to cover college expenses. Students can currently get these loans at 3.6 percent interest rate. The terms for repayment are flexible and students can chose to pay back in easy installments spanning 10 to 20 years.

Given the rise in demand and state of total student debt, interest rates of federal subsidized loans were expected to go up. But no one was expecting them to double. A 100% increase in rates? Anyone borrowing for college from 1st July 2018 will have to pay 6.8% interest rate. Which means they have to pay extra $5,000(10 year) to $11000(20 year) USD over the life of a $25,000 USD loan. Quite a blow? Hun?

Interest rates on Student Loans were highest in Canada. But it seems that United States wants to be a world leader in this regard as well. We need to follow Germany and New Zealand, where there is zero interest rate on student loans. we are chasing the wrong car…. !

Percentage of people defaulting on student loans is already more than those defaulting on credit card or auto loans. This recent increase in interest rate is really a very bad idea. it is simple not a fair interest rate.

People are protesting all over the place. One of the parents I spoke to on dinner last night was quite resent full on the recent hike in Interest rate. the crux of her argument was that college tuitions are simply unaffordable. Only student with exceptionally high GPA can get any scholarships. Even parents who save for kid’s college can not afford them. Its not just the tuition fee, you have to pay for travel, boarding and lodging as well. Even when the kid comes out of college, there is no guarantee that he will be able to afford to pay off his student loan. Recent interest rate hike has just made it more difficult for us to education our kids properly.

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