The State of Education

The State of Education

July 5, 2006

Beginning last Saturday (July 1), interest rates on student loans experienced the greatest jump in history, with the variable rate on common Stafford loans shooting up almost two percent for students and graduates. The rate hike comes as a result of the Deficit Reduction Act of 2005, which was signed into law by President Bush on Feb. 8, 2006 as part of an effort to save the federal government more than $22 billion over the next five years. (By comparison, the Department of Defense spends approximately $8.1 billion a month in Iraq). In today’s global technology and information-driven society, obtaining a college diploma is more important than ever. The average college-educated worker (PDF) earns about 73 percent more over a working lifetime than a high school graduate and faces a 40 percent lower risk of unemployment. If we are to remain competitive in this global economy, America needs to re-examine its commitment to educating its youth.

• The latest interest rate hike is putting higher education further out of reach. As of last Saturday, the new variable rate for Stafford loans will be 6.54 percent for students and 7.14 percent for graduates. In the 2004-2005 school year, the rates on the same loans were just 2.77 percent for students and 3.37 percent for graduates. The interest rate hikes are estimated to add an additional $2,000 in loan payments to the average borrower's debt. As a new report by Sen. Ted Kennedy's (D-MA) office (PDF) explains, "The cost of attending a public four-year college increased 32 percent between the 2000-2001 and 2004-2005 school years.” Compounding the problem is the fact that family incomes have not been able to keep up with the exorbitant costs.
  
  

• Students are incurring massive amounts of debt — affecting their career path. Financial aid has been lagging behind for families in need of help. Federal grants have not kept pace with tuition growth. As a result, more students are taking out loans to pay for college, leaving them to shoulder a larger debt burden than ever before. From 1997-2002, the average undergraduate debt rose 66 percent (PDF). By another measure, "The average amount of federal student loan debt upon graduation has increased from $8,946 in 1992-1993 to $17,400 in 2003-2004" (PDF). The debt that students are shouldering is increasingly limiting their career choices. Furthermore, reports show that students are delaying buying a home and putting off marriage (PDF) due to educational debt.
  
  

• As college becomes more expensive, the achievement gap between low-income and high-income students continues to grow. The graduation rate for high-income students is 60 percent higher than the rate for low-income students. It is estimated that between 2001 and 2010, 4.4 million low- and moderate-income (PDF) academically qualified students will opt not to enroll in a four-year university, and two million of them will forgo college entirely — all because the cost of a college education is beyond their reach. A new commitment to education is sorely needed in America — our future, and our ability to compete in a globalized economy, is at stake.