WASHINGTON — Despite the White House’s efforts to provide relief to student borrowers, those arriving on campus this fall are financially squeezed by rising college costs and rising interest rates that are making it more expensive to borrow money. money to cover these expenses.
Students looking to take out new federal loans will have to pay an additional $1,200 for every $10,000 they borrow over 10 years after interest rates drop to 5% from 2.75% two years ago , according to an NBC News estimate. Private bank lending has grown even faster, with some charging more than 13% for student loans this fall, people familiar with the industry said. Borrowers with existing variable-rate loans began to see their monthly payments increase from the higher rates, they said.
Some student loan advisers predict that federal and private loan rates will rise even further next year as the Federal Reserve raises rates in an attempt to quell inflation that has been building for decades.
“Looking ahead borrowers should be aware that rates are likely to jump significantly next year,” said Robert Farrington, founder of The College Investor, which advises student borrowers. “I think we’re going to see those rates go up at least another 1-2% next year, which is really going to increase costs for borrowers.”
The higher cost of borrowing for college comes as tuition fees have risen an average of 3% to 5% this fall, according to a study by Fitch Ratings, a credit rating company, and inflation increased the cost of essential items such as food and housing.
Rising costs mean that many students have to borrow more money at higher rates, further compounding the student debt problem the Biden administration has moved to address.
Biden announced last month that he would forgive $10,000 in federal student loans for people earning less than $125,000 a year in 2020 or 2021, or $250,000 for couples filing taxes jointly. He also said Pell Grant recipients, who make up the majority of student borrowers, would be eligible for additional debt relief of $10,000, for a total of $20,000, and he proposed new programs that would cap the amount of their income. borrowers would have to pay monthly for their federal loans.
But Biden made clear that the debt cancellation was a one-time event and that his plan did not address the underlying problem of the rising cost of college, providing fewer benefits to incoming students who do not. will not be eligible for loan forgiveness for the money they take to pay tuition this fall and beyond.
The White House did not respond to requests for comment.
“They’ve really done things to reach out to some of the most vulnerable borrowers, and I don’t want to take anything away from them, but the frustrating part is that the problem isn’t student loans – student loans are a symptom. The problem is the cost of higher education,” said Betsy Mayotte, president of the Institute of Student Loan Counselors. “So what frustrates me is that there hasn’t been a more solid conversation about solving the real problem.”
Biden, who also extended the pause on federal student loan repayments for a final time through Dec. 31, has been under pressure for months from Democrats and advocacy groups to use his presidential authority. to cancel student debt. Although the president made it clear in his announcement that the cost of higher education was far too high, his administration has taken no concrete action to address rising tuition fees.
“We commend this administration for answering the call to resolve the student loan debt crisis,” said NAACP President Derrick Johnson. “However, with interest rates rising and potentially another interest hike in November, we’re also seeing a big increase in the cost of going to college.”
Hannah Appel, co-founder of the Debt Collective, a syndicate of borrowers who fought for widespread student loan forgiveness, and professor of anthropology at UCLA, said “$20,000 in debt relief student debt doesn’t go far enough, leaving millions of debtors with high balances dry and doing nothing for prospective students.
“The root cause of student debt is skyrocketing tuition fees, which households are forced to finance with debt,” she said, adding that Debt Collective would continue to advocate for “the total abolition of debt. student debt and free college for all”.
In the face of high inflation, rising costs and labor shortages, colleges face their own financial pressures, said Emily Wadhwani, senior director at Fitch Ratings.
Although tuition is going up 5%, it’s still not enough to keep up with inflation of around 8% that’s driving up the price of everything from electricity to school supplies. And stock market declines mean that some institutions will have less income generated from their endowments.
“Money is running out of cash right now, both for students and for universities,” Wadhwani said.
While some colleges might be reluctant to increase tuition enough to keep up with inflation for fear their enrollment numbers will drop, Farrington said many institutions will pass those costs on to students.
“It’s just going to keep propagating upwards where students are going to pay more for those education costs and everything that goes through that pipeline at the end of the day,” he said.