Student Loans

Don't Sweat Student Loans!


courtesy The Atlantic

Interest rates for new subsidized student loans are supposed to double today, from 3.4 percent to 6.8 percent, unless the government passes a fix (as they've done for a number of years). Obviously, anybody would want to pay a lower rate than a higher one, but the difference in the monthly payments for $25,000 (about the average amount that students who take loans have out upon graduation) is about $40 a month for the typical 10-year repayment cycle. (Go here for a student loan calculator).

Back in the fall of 2011, Meredith Bragg and I released "3 Reasons We Shouldn't Bail Out Student Loan Borrowers" (click to watch). Forgiving student loan debt was arguably the leading plea from Occupy Wall Street. It was a bad idea then and remains one now (for a link-rich argument, go here). The short version: These loans are voluntary, the average payment amounts are hardly overwhelming (especially when increases in lifetime earnings are factored in), and bailouts are never a good idea. 

A college education is an investment—either in terms of future earnings or, as I prefer, in gaining some skills but mostly knowledge about what you'd like to do with your life. If students are attentive shoppers, they can get a great education at a low, low price. That's not being glib, either—it's the simple truth (and one I experienced), given the vast array of types of schools and programs that are available. To pretend that it's tragic or an outrage to have to pay $250 or $300 a month for 10 years for a loan that allows you to earn between $280,000 and $1 million extra over your life is not particularly convincing. Especially when the loan is being subsidized by a government that's already broke.

Interesting: Another year of 3.4 percent rates for borrowers will cost taxpayers $6 billion.

Also interesting: Discover offers private-sector student loans are pretty good rates (between 5.49 percent and 10 percent).