4 Ways New Student Loan Regulations Hurt Students

It seems that everyone agrees that the total cost of a college education is too high, but that completing a college degree is the best chance to secure employment. President Obama, while “slow-jamming” the news on Late Night with Jimmy Fallon, “Now is not the time to make school more expensive for our young people.” He also recently told reporters,

“I’ve always believed that we should be doing everything we can to help put higher education within reach for every single American student — because the unemployment rate for Americans with at least a college degree is about half the national average.  And it’s never been more important. Unfortunately, it’s also never been more expensive.  And most of you guys I’m sure have reported about this and know this — students who take out loans to pay for college graduate owing an average of $25,000 a year. And I know what this is like, because when Michelle and I graduated from college and law school we had enormous debts, and it took us a lot of years to pay off. So that’s probably why I feel this thing so personally.”

Why, then, do the new student loan regulations, which will take effect on July 1, further narrow eligibility for millions of students, slamming the door shut on students who come from low-income families? Though the new student loan regulations, many of which are a product of vicious political infighting on Capitol Hill, have been heralded as a way to expand access, some aspects of the new regulations seem designed to turn higher education into yet another arena in which only a few Americans can benefit. The remaining 99%, it seems, will sink further into poverty, with little chance of improving their futures unless they increase their student loan debt.

Here are four examples of the ways that some of the new changes will actually hurt students:

1. Congress eliminated the 6-month grace period during which it used to pay student loan interest following a student’s graduation or after a student stops attending college. This means that starting July 1, 2012, students will now start accumulating interest the second they get their degrees in hand. This change takes effect at a time when, according to The Huffington Post, 50% of recent college graduates are unemployed. It also means that student loan debt will continue to accrue in large amounts during the crucial period when students are searching for employment and struggling to establish themselves as financially independent.
2. Congress doubled student loan interest rates to 6.8% when it failed to extend the current 3.4% rate that was put into effect at the height of the economic crisis a few years ago. Some argue that this actually translates to a very small annual increase per student, about $9 a month, but the monthly increase needs to be considered over the life of the loan repayment period to really illustrate the new financial burden this imposes on recent college graduates.
3. Pell Grant eligibility has been lowered for students who must attend college over a long period of time. After six years or 12 semesters, students will no longer be eligible for Pell Grants, a change from the previous eligibility that allowed students to work through their degrees up to 18 semesters, or 9 years. This may penalize students who, for various reasons, are not able to take the traditional path through college. For example, they may have had difficulty completing their degrees, either because they struggle with learning difficulties or work full-time to support a family while attending college.
4. Graduate and professional students no longer qualify for subsidized loans. Subsidized loans are loans in which the federal government pays the interest rates while a student is enrolled in school. Now, all loans for graduate or professional programs will be unsubsidized, and students will accrue interest every single day that they are in school. This will have the effect of forcing many students to surrender their dreams of attaining a solid professional education that will enable them to earn more over their lifetimes. This cut was a compromise to cover the cost of expanding Pell Grant funding for undergraduates, but as some have pointed out, many careers that are important to society require graduate degrees, such as those in education, medicine, public health, etc.

The goal of many of these regulations is to enact caps on the total amount of student loan debt an individual can accrue. This is a response to the dramatic rise in student loan debt, which now surpasses $1 trillion dollars-more than American credit card debt.

While that’s an admirable goal, should it be achieved by circumscribing the educational choices of those most in need of quality higher education? As Camille Rivera explained in The Huffington Post on June 19, the doubling of the loan interest rate alone will cripple millions of students across the country. She writes, “This would affect 400,000 students in New York alone. Doubling loan rates would cost New York’s students and their families $419.7 million.”

Contrary to apologists for the new rates, this is not a minor increase. It is an expansion of an already substantial financial burden that does not help lower-income students take advantage of higher education’s potential to increase the quality of their lives. These changes, though providing some benefits, in fact contradict everything that everyone argues right now about how important a college degree is and how necessary it is to expand access to low-income students.

The saddest reality of these new regulations is that they will hurt society in general, because we will not only be creating a larger gap between rich and poor, we will be eliminating the opportunities for many students to enter into important public service positions.

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