COMMENTARY | The recent deal struck by the Senate to keep interest rates for subsidized Stafford Loans from doubling to 6.8 percent has received a tremendous wave of media attention over the last few months. As congressmen scrambled to get a deal in place to avoid a tidal wave of criticism from the American public, the real danger in the looming student loan crisis remained oddly absent from conversations on Capitol Hill. As a college student myself, concerns about interest rates, while important, are not nearly as threatening as the skyrocketing burden that is being placed on families due directly to reforms established by President Obama in his first term.
Student Debt Statistics Hide True Costs
Although no one in the Obama administration is bragging about the average graduate debt rising to $27,000 in 2013, up 12.5 percent from when the president took office, the true student loan debt problem extends far beyond the scope of such often-cited figures. For instance, a recent Fidelity survey of 750 college graduates revealed that actual personal student debt was closer to averaging $40,000 when agreements made with family members, credit card debt, and spent savings were taken into account. Even this data, however, fails to capture the true cost of a college degree, because it ultimately tells us nothing about the growing and new burdens placed on families to pay student costs.
Parents Now Forced to Take on Student Debt
Prior to reforms made by the Obama administration, students would traditionally shop around for private student loan lenders. Under the current system, however, students are only eligible to loan out a government-set figure that amounts to a fraction of the actual cost of attendance. The difference remaining is then made up by parents or family members through federal student loans know as Parent Plus Loans. These loans belong wholly and completely to the parents and students hold no responsibility for them whatsoever, which is a major departure from the student loan system previously in place.
Even more troubling, the federal government allows most eligible parents to borrow virtually any amount needed, thus encouraging parents to lend out money they can’t afford to pay back and incentivizes colleges to increase tuition costs knowing that parents are willing and often required to foot the bill. According to a 2012 report published by the National Association of Consumer Bankruptcy Attorneys, most parents under the new system end up paying an average of $50,000 in student loans per child attaining a 4-year degree, bringing the real average total cost of a college degree to roughly $90,000.
The Unintended Costs to the Obama Reforms
Additionally, the reforms bring unintended and detrimental consequences for student lenders and families. For instance, problems arise when students need to lend out more than what the government now determines is necessary. If a student suddenly needs money for transportation, travel, medical bills, or some other unforeseen costs, neither the parent nor the student may be eligible to loan out additional funds beyond the cost of attendance set by the school in conjunction with the federal government. In the past, students could loan out any amount they needed so long as a private lender was willing to agree to the terms. This now leaves families responsible to cover costs once accounted for by student loans.
Student Loan Reforms Have Caused Higher Tuition and Costs for Families
The reforms put into place by the Obama administration to address problems in student lending have not only failed to alleviate the rising costs of higher education, they have ultimately turned the student loan crisis into a family loan crisis. Although parents can choose not to take out loans for their children, such a decision makes it virtually impossible for many students to pay for tuition and housing. This places many families in the horrible position of choosing to take on debt they can’t afford or telling their eager children that college just isn’t possible for them.