While Congress was enjoying its July 4th recess, interest rates on some federal student loans doubled last week. And the head of the New Hampshire College and University Council thinks a key point was lost in all the talk surrounding the issue.
"Now that the federal government has taken over the direct loan business, these interest rates are really profit that is going to the federal government," said Thomas Horgan, president and CEO of NHCUC, a nonprofit consortium of 22 public and private institutions of higher education in the state.
"And so we hear some talk from some politicians that lowering the interest rate is going to cost the federal government money. The reality is it's going to reduce the profit they make," he said.
Congress revamped the federal student loan program in 2010, eliminating the federal subsidies and guarantees that used to go to private lenders in favor of government loans made directly to students.
The change was designed to eliminate the middle man, Horgan noted. "Now, instead of the profit going to the banks, the profit goes to the federal government, who is also the person who issues the loan and sets the rate."
But the two parties in Congress couldn't come to an agreement about what the interest rate should be for direct subsidized Stafford loans, loans that are based on financial need. The government covers the interest on such loans while students are in school; once they graduate or leave, they have to begin paying back the principal plus interest.
Congress had previously lowered interest rates on subsidized loans for undergraduates to 3.4 percent but that lower rate was set to expire on July 1. So without congressional action, the rate jumped to 6.8 percent for loans taken out after that date.
Horgan said many in the higher education community here expect that Congress will find a way to retroactively reset the rates when it comes back from recess.
He contends the federal government "should not be in the business of student loans to make a profit."
"Doubling the interest rates goes against the very basic principles of why we have subsidized federal loans," he said. "It makes it less possible for students to be able to afford to go to college, it makes it less likely they'll be able to pay their loans back in a timely manner, and it increases an already ridiculously high debt level for students."
According to the Project on Student Debt, New Hampshire college graduates carry, on average, the highest level of debt in the country. Members of the Class of 2011 here averaged $32,440 in debt; the national average was $26,600.
And the same study found three-quarters of students here have college loans, the third-highest rate in the country, behind North Dakota (83 percent) and South Dakota (76 percent).
The Project on Student Debt is an initiative of the Institute for College Access & Success, described on its website as "a nonprofit independent research and policy organization dedicated to making college more available and affordable to people of all backgrounds."
Tara Payne is vice president of college planning for the New Hampshire Higher Education Assistance Foundation (NHHEAF). She cited a report from the Democratic office of Congress' Joint Economic Committee that estimates the rate increase will add $2,600 to the average borrower's debt. And for students who borrow the maximum amount allowed, it adds $4,500 over the life of the loan.
Like Horgan, Payne sees irony in what's going on with the student loan rates. "I think that the administration has sent a message about how important it is that we increase the number of college graduates in this country, and I think families are doing their part," she said.
Parents take out second mortgages to pay for college, and students look for lower-cost ways to complete their educations, Payne said. Yet the federal government just doubled the interest rate for the most vulnerable students and families, she said.
"These are working folks who are doing everything in their power to be prepared to pay for college," she said. "It's just contrary to the message that the federal government is sending about the importance of education beyond high school.
"Money talks. When the dollars aren't there to help support them, even when they're willing to work for it and borrow for it, then that's difficult," she said.
Philip Armstrong, a 2013 graduate of Goffstown High School, is heading to Villanova in the fall to study civil and environmental engineering. He said he never used to understand how people could still be paying off their college debts in their 40s and 50s. "I thought it was absurd," he wrote in an email exchange with a reporter.
Now he gets it, Armstrong said. And word that interest rates just doubled on his federal subsidized loan doesn't help. "Do they really know what an impact it causes?" he asked. "We are paying our tuition bill till we are middle age practically!
"I guess my goal of paying off college debt within five years after graduation will not be accomplished," he wrote. "I will have to multiply that goal of five years by 10."
NHHEAF's Payne said New Hampshire's congressional delegation "did its part" to try to resolve the interest rate issue, but Congress couldn't reach an agreement in time. (See related story.)She said she understands that taxpayers have a financial interest in getting more money back from these federal loans. "But I think that those taxpayers interested in supporting our work force goals and our higher education goals, and those with children who are going to college and struggling to make those payments, may not be as happy."
Horgan contends the increase is especially unfair for students who are midway through their education and now face doubling interest rates for their next two years.
"That sounds a little bit like bait and switch to me," he said. "Who doubles? Really, who doubles the rates?"
He noted the debate over college loan rates comes at a time when there's growing pressure on American students to compete globally. "A generation ago, the United States was Number 1 among the industrialized nations in the percent of our citizens who had four-year bachelor degrees. Today, we're Number 12," he said.
"You can't have a democracy if your citizens aren't educated," he said.
"So for the sake of our democracy, and for the sake of our economy ... we need to be putting more resources into making college more affordable and encouraging more students to make the choice to go on to higher education so that we're able to participate in the 21st-century economy."
In the end, Horgan said, "I don't really think the national debt should be paid for on the backs of students trying to get an education."