This month, education loan giant Sallie Mae is launching its first fixed-rate private student loan to compete with federal student loans, which have historically been better deals for students because of low, fixed interest rates, as opposed to variable rates, and more protections for borrowers.

The private loans will have a fixed interest rate from 5.8 percent to 12.9 percent, depending on the credit worthiness of the student borrower or cosigner, usually a parent, and underwriting standards, Sallie Mae said in a statement. By comparison, the fixed interest rate on an unsubsidized federal Stafford loan is 6.8 percent and the fixed interest rate on a Parent PLUS loan is 7.9 percent.

Most private student loans offer variable interest rates, which can be better for borrowers if the rates stay low. But if the rates increase, borrowers can end up owing much more in interest payments. Sallie Mae’s private student loans, for example, have variable interest rates that range from 2.3 percent to 10.1 percent and are set to the Libor, or London interbank offered rate.

According to Sallie Mae, the company’s new fixed-rate loan will help alleviate concerns that some borrowers have about variable-rate loans.

“For some families that have concerns about how rates may change over time, it answers a need,” said Charlie Rocha, senior vice president for student lending at Sallie Mae (“Sallie Mae Competes with Feds for Fixed-Rate Student Loan,” Bloomberg Businessweek, May 7, 2012).

However, private student loans, even those with fixed rates, don’t offer the same protections for borrowers that are found with federal student loans, including income-based repayment and deferment options. And, unlike all other forms of private consumer debt, such as credit card debt, private student loans can’t be discharged in bankruptcy.

Sallie Mae, which had a $37 billion private student loan portfolio as of the first quarter of 2012, said it was offering the fixed-rate private student loans to boost education loan originations that were slashed after federal legislation stopped private companies from issuing federal student loans as of July 2010 and brought all federal student loan origination under the federal Direct Loan program.

The company said it expects to write $3.2 billion in private student loans this year. Already, originations have been on the rise, increasing in the first quarter to $1.2 billion from $940 million last year. Of the students who took out private loans from Sallie Mae in the first quarter, 88 percent had a parent of other adult as a cosigner.

A graduate of George Washington University Law School has sued the lenders of his private student loans and the loans’ servicer for allegedly operating a “scheme” to fraudulently obtain additional interest payments from borrowers.

Justin Kuehn, 29, has accused Citibank, Discover, and The Student Loan Corporation, a subsidiary of Discover, of “deceiving” student loan borrowers into believing that an interest rate reduction that had been applied to their college loans had reduced their monthly payments when, in reality, their principal payments had been lowered and their repayment terms extended.

After graduating from law school in 2007, Kuehn consolidated four private student loans — two with Citibank and two with Sallie Mae — into a single loan with the Student Loan Corporation. The consolidation loan had a fixed interest rate of 9.55 percent and an original balance of $99,148.19.

For four years, Kuehn, who practices commercial litigation in New York City with the law firm Brar Wexler Eagel and Squire, dutifully made on-time minimum monthly payments of $845.72 — as well as occasional extra payments — that were automatically debited from his checking account. However, in January 2012, the Student Loan Corporation notified Kuehn that it had reduced his interest rate by 0.5 percent to 9.05 percent and that his monthly payment had been reduced to $539.27, a dramatic drop of $306.45.

“The variable interest rate on your student loan has changed. Your monthly payment has been adjusted to reflect the new interest rate, as stated above,” the statement from Student Loan Corporation read. Immediately, Kuehn knew that something was wrong.

“They claimed [the reduced payment] was due to an interest rate reduction but I knew that, just by the amount of that drop, that couldn’t be correct,” Kuehn said in an interview.

Kuehn eventually learned that the decline in his monthly payment had in fact little to do with the interest rate reduction; the amount of interest paid each month fell only $13.37 to $496.68 from $510.05. Instead, Student Loan Corporation had — without Kuehn’s knowledge or authorization — slashed the monthly principal repayment amount from $335.67 to $42.59 and extended the consolidation loan’s repayment period, a move that would cost Kuehn thousands of dollars more over the longer life of his loan (“Student Loans: Law Graduate Sues Lenders for Interest ‘Scheme’, ABC News, May 2, 2012).

Law Graduate ‘Outraged’ by Student Loan Servicer’s Alleged Deception

Kuehn said he was “outraged” when he realized that Student Loan Corporation had extended his loan term without his consent — and without disclosing that they had done so — and then deceived him by telling him his dramatically lower monthly payment was due to a 0.5 percent interest rate reduction.

“This will lull you into the belief that you are not paying more interest when in fact you are,” Kuehn said. “They’ve basically extended the term of your loan and labeled it as a reduction to the interest rate.”

Kuehn’s lawsuit against Citibank, Discover, and The Student Loan Corporation accuses the defendants of systematically breaching contracts and violating business law. The complaint, which Kuehn said he hopes becomes a class-action lawsuit, seeks an injunction and unspecified damages.

A spokesman for Discover, which acquired Student Loan Corporation in January 2011, said that the bank couldn’t comment on pending litigation. A spokesman for Citibank said that the bank couldn’t comment because it had not been served with the lawsuit.

“Student loans can be terribly complex and difficult to understand for even the most sophisticated borrower, much less for a student who may have limited credit experience,” said Gerri Detweiler, a financial expert with Credit.com. “You shouldn’t need a degree in finance to understand what a student loan will really cost, but these days it’s not a bad idea.”

The U.S. Department of Education has been busy transferring large collections of federal Direct student loans to new nonprofit loan-servicing companies in an effort to streamline how education loans are serviced. However, the massive transition is causing some borrowers to suddenly encounter problems with their college loans.

The transition, which has been going on for months and will ultimately include millions of loans, was mandated by a little-known provision in the 2010 healthcare overhaul that ended federal student loan origination subsidies to private banks and other lenders and brought all federal loan origination under the government’s Direct Loan program.

Supporters of the law said that it would make federal student lending and servicing more efficient in the long term while saving taxpayers billions of dollars. But, at least in the short term, the transition is causing problems.

Although it’s not clear exactly how many borrowers have been affected by the transition, the stories of some of the one million borrowers who have had their loans transitioned to new servicers since last fall have been a growing cause for concern.

Some Borrowers: Adjusted Payments, Confusion, and Errors a Result of Loan-Servicing Transition

For example, Isabella Beck said that after her student loan had been transferred to loan servicer Mohela in December, she received a letter saying that her monthly payments had been reduced to $50, about a quarter of what they had been.

Concerned that the change would cause her to ultimately pay much more in interest over an extended repayment period, Beck said she called Mohela repeatedly to fix the problem, only to have the payments repeatedly adjusted.

Scott Trudeau, another borrower with a loan that was transferred to Mohela, said that he wasn’t notified of the switch until after the fact and that since then he’s had nothing but problems. Although Scott said he’s never fallen behind on his payments — or ever had an issue with the Education Department — he’s had constant problems correcting his bank account information with Mohela, which has led to regular delinquency notices and “nothing but constant confusion” with the servicer.

Karen Mahnk said that when she logged into the Education Department’s student loan website in October she saw that her loan balance, which had been around $100,000, was suddenly zero. After calling around, she eventually spoke with her servicer who told her that she had been placed in administrative forbearance.

But Mahnk hadn’t sought or applied for forbearance and she didn’t want to put off her loan payments or rack up additional interest. A second call to someone else with her servicer assured her that there was no record of forbearance.

Eventually, Mahnk learned that her loan had been transferred to a new servicer, EdFinancial, which told her she wasn’t due for a payment until June. But Mahnk, still confused about many details and wanting to take no chances, said she has been forcing through monthly payments anyway (“Student Loan Borrowers Dazed and Confused by Servicer Shuffle,” ProPublica, April 23, 2012).

Lobbyist Wrote Provision Designating New Loan Servicers

Will Shaffner, Mohela’s director of business development and government relations, seemed to place the onus for unresolved problems back on borrowers. “Anytime you change a servicing relationship, it can cause concern,” Shaffner said in an interview. “[Borrowers] need to pick up the phone and call us. If they’re not satisfied with our service or aren’t getting answers, they should ask to speak with a supervisor. They can even get in touch with our CEO if they need to.”

It’s worth noting that the Education Finance Council, a lobbyist for a consortium of nonprofit student loan companies that were being kicked out of the federal loan origination business during the move to direct lending, managed to secure language in the law that forces the Education Department to use companies such as Mohela and EdFinancial as loan servicers for the government’s Direct loan program.

According to the Education Department, the transition is still a work in progress. The department said it was pushing back its own implantation schedule with regard to the phasing in of new servicers.

“FSA has been working aggressively to implement the new not-for-profit servicers,” the Education Department’s schedule states. “Our original schedule did not fully accommodate the level of effort required to bring up servicers in a way that minimizes risks for borrowers, FSA, and the not-for-profits themselves.”

There’s been a lot of political posturing and somewhat apocalyptic soothsaying over a pending rate hike for federal student loans set to take effect this summer. But the reality is that the rate increase, if it doubles as scheduled, won’t affect current borrowers — or their estimated $1 trillion in outstanding student loan debt — and it won’t affect future borrowers to the extent that political rhetoric might make it seem.

As a result of the College Cost Reduction and Access Act of 2007, interest rates on subsidized federal Stafford loans for undergraduates began a multi-year process of stepping down from 6.8 percent to the current rate of 3.4 percent. But the law is scheduled to expire on June 1. If Congress takes no action to extend the act, the interest rate will revert to 6.8 percent.

The student loan interest rate hike is making for some good old fashioned political chest-thumping as election season kicks off, but what is the reality behind the rhetoric? Who will the interest rate affect and how will it affect them?

It’s important to understand that the interest rate hike won’t affect a single current student loan. That is to say, any loan taken out before July 1, 2012 won’t be affected by the pending rate hike. For example, a federal student loan taken out during the 2010–11 academic year has a fixed interest rate of 4.5 percent. That rate won’t change on July 1, regardless of what happens in Washington.

The only borrowers that could be affected by an interest rate hike on subsidized federal Stafford loans for undergraduates are those who take out loans after July 1.

According to the U.S. Department of Education, 7 million undergraduate students will qualify for subsidized federal student loans during the upcoming school year. That’s certainly no number to scoff at. But the way politicians are talking, they’re making it sound like the rate increase will either make the prospect of repaying loans so ominous as to drive students away from college or land them in the poor house after they graduate.

Reality of Pending Student Loan Rate Hike Obfuscated by Political Rhetoric

Neither of these scenarios is accurate, according to Kalman Chany, author of Paying for College Without Going Broke. Chany says that while the prospect of more expensive student loans is worrisome to graduates who are struggling with unaffordable payments, a lot of information that has been circulated about the pending rate increase is either misleading or downright wrong (“Most Student Loans Unaffected By Upcoming Increase in Rates,” USA Today, April 30, 2012).

First, the rate increase would affect only about a third of undergraduate students during the upcoming school year. Interest rates for unsubsidized Stafford loans for undergraduates, Stafford loans for graduate students, and Parent PLUS loans wouldn’t change.

Second, while it’s true that more debt is more debt, no matter how the discussion is framed, the difference between 3.4 percent interest and 6.8 percent interest isn’t exactly the crushing burden it’s being made out to be, and keeping the interest rate low, as a temporary solution to immediate student debt woes, is akin to placing a Band Aid on a compound fracture.

For example, for $23,000 in subsidized Stafford loans, the maximum allowed for undergraduate dependent students, the interest rate increase would cost about $5,000 over the typical 10-year repayment term, according to FinAid.org. That’s a little more than an additional $40 per month. For a more modest loan of $11,329, the extra $2,265 in interest over 10 years comes out to an additional $22 per month.

And third, even if the interest rate doubles, subsidized federal student loans will still be the first choice in higher education financing. Compared to private student loans, subsidized federal loans pay borrowers’ interest while they’re in school and offer repayment options that typically are unavailable from private student loans, including deferment and income-based repayment, which caps borrowers’ monthly payments as a percentage on income and them forgives any remaining balance after 25 years of payments.

Legislation extending current interest rates on federal education loans passed the House on Friday but may be doomed to fail in the Senate because of a partisan disagreement over the bill’s funding.

Both Republicans and Democrats have politicized student loans heading into the presidential election season and delivered hand-tailored messages to their voter bases, especially about the expiration of a 2007 law that would result in the interest rate of federal Stafford loans doubling from 3.4 percent to 6.8 percent on July 1.

Both parties, wary of jeopardizing middle class votes, have publically supported extending the lower interest rate. The problem is that Republicans, who control the House, and Democrats, who control the Senate, don’t see eye-to-eye on how to fund the one-year extension.

Democrats want to fund the estimated $5.9 billion cost of the extension by closing tax loopholes for special interests, including tax subsidies for big oil companies. Republicans want to fund the extension by taking money from the Affordable Care Act, the hotly-debated signature healthcare law of the Obama administration.

Some see the Republican funding method as a way to get back at the administration and undermine the Affordable Care Act, which the GOP has strongly opposed since its inception. But Senate leader Mitch McConnell, a Republican from Kentucky, said that, in reality, Democrats are to blame for the contested solution to the interest rate extension and are simply playing politics with voters.

“Let’s be honest,” McConnell said. “The only reason Democrats have proposed this particular solution to the problem is to get Republicans to oppose it, to make us cast a vote they think will make us look bad to the voters they need to win the next election.”

Democrats, who were quick to point out that the Republican version of the bill actually contained no provisions to block the college loan interest rate increase, said that the Republican’s funding mechanism — cutting money form a program that covered preventative healthcare costs — was just another example of the GOP’s “war on women” and of its promise to either repeal “Obamacare” or dismantle it one piece at a time (“Boehner Offers Student Loan Deal,” CNN, April 26, 2012).

“The Republican bill strips away vital funding for breast and cervical cancer screenings for women. It strips funding for increasing child immunization and for screening newborns for things like hearing loss. In other words, the Republican bill will directly hurt women and children,” Rep. George Miller, the ranking Democrat on the House Education and the Workforce Committee, said in a statement.

“They are yet again asking working families to pay the price instead of closing tax loopholes that benefit special interests,” Rep. Chris Van Hollen, D-Md, said.

House Speaker John Boehner, R-Ohio, did his part by offering a stern rebuttal, at first describing the mushrooming political showdown over student loan interest rates as “beneath the dignity of this House and the dignity of the public trust that we enjoy,” but then devolved into the political-maneuvering fray himself.

Prior to the Friday vote in the House, Boehner struck out at the president saying, “This week the president is campaigning and trying to invent a fight where there is none and never has been on this issue of student loans.”

During the debate, Boehner hammered Democrats over their supposed opposition to the Republican funding mechanism. “Give me a break,” protested Boehner, “you may have already forgotten that several months ago you voted to cut $4 billion out of this [preventative healthcare] fund to pay for the payroll tax cut” (“Analysis: Student Loan Agreement? Not So Fast,” Fox News, April 30, 2012).

The White House weighed in with a veto threat, but the House passed the Republican version of the bill on a near party-line vote of 215–195.

A petition in support of legislation that would provide dramatic relief for student loan borrowers neared one million signatures Thursday, a day after the total outstanding debt from student loans supposedly reached $1 trillion.

Wednesday was “1-T Day,” according to Robert Applebaum, founder of ForgiveStudentLoanDebt.com and the creator of a petition calling on Americans to support the Student Loan Forgiveness Act of 2012, proposed by Rep. Hansen Clarke, a Democrat from Michigan. In an email, Applebaum urged organizations and individuals to participate in a National Day of Action by signing the petition and spreading the word about Clarke’s proposed legislation.

“Total outstanding student loan debt in America is expected to exceed $1 TRILLION this year,” the petition reads. “Millions of hardworking, taxpaying, educated Americans are being crushed under the weight of their educational debts, while the economy continues to sputter. Support a REAL economic stimulus and jobs plan. Support the Student Loan Forgiveness Act of 2012 (H.R. 4170).”

By Thursday morning, the petition, hosted by SignOn.org, had over 912,000 signatures. It will eventually be delivered to Rep. John Kline, D-Minn., the U.S. House of Representatives , the U.S. Senate, and President Barack Obama.

Clarke’s proposed legislation would significantly alter federal student loan repayment policies for current and future borrowers:

• Create a “10–10 standard” for student loan forgiveness by limiting payments to 10 percent of a borrowers discretionary income for 10 years, after which any remaining debt would be forgiven
• Current borrowers, including those who are delinquent, would be grandfathered into the 10–10 program and allowed to count the amount they have already paid over the past decade toward meeting the forgiveness requirement
• Cap interest rates on federal student loans at 3.4 percent
• Borrowers whose education loan debt exceeds their income would be allowed to convert private student loan debt into federal Direct loans, at 3.4 percent interest, which would then be enrolled in the 10–10 program
• Reduce the federal Public Service Loan Forgiveness requirement from 10 years to five years for graduates who enter public service professions or agree to work in underserved areas of the country
• Current borrowers would be eligible for 100 percent forgiveness under the 10–10 program, but future borrowers would be subject to a $45,520 cap on forgiveness (the average cost of a degree from a four-year public university)

According to the bill’s language, the legislation would be financed by projected savings from the end of Iraq and Afghanistan Overseas Contingency Operations and would not take funding from existing financial aid programs.

For Applebaum, Clarke’s legislation would help undo a commoditization of education that has developed over the past three decades, allow borrowers to once again participate in the economy, and help improve the financial situation of all Americans.

“As a result of more than 30 years of treating higher education as an individual commodity, rather than a public good and an investment in our collective future,” Applebaum wrote, “those buried under the weight of their student loan debt are not buying homes or cars, not starting businesses or families, and they’re not investing, inventing, innovating or otherwise engaged in any of the economically stimulative activities that we need all Americans to be engaged in if we’re ever to dig ourselves out of the giant hole created by the greed of those at the very top.”

Presumptive Republican presidential nominee Mitt Romney, in both a deviation from his party’s message and an apparent pitch to woo young voters, announced Monday that he would support an extension of the low interest rate on federal student loans, which is set to expire this summer.

“I fully support the effort to extend the low interest rate on student loans,” Romney told reporters. “I support extending the temporary relief on interest rates for students as a result of — as a result of student loans, obviously — in part because of the extraordinarily poor conditions in the job market.”

Romney’s announcement comes at a time when student loans are gaining more political attention in the run-up to the presidential election in November. The current financial aid target for both parties has been the expiration of a law on July 1 that would result in a doubling of the interest rate on federal subsidized Stafford loans from 3.4 percent to 6.8 percent, which would saddle debt-burdened borrowers with thousands of dollars more in interest payments.

Democrats want to use billions of dollars of taxpayer money to extend the lower interest rate, while Republicans have said they’re against funding the lower rate, which, in order to avoid deficit spending, would require diverting money from other programs in the Republican budget.

Romney’s break from the Republican party’s message was proof, perhaps, that federal financial aid policy will, in the end, bow to more basic political considerations.

Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute, a libertarian think tank, predicted that while Democrats and Republicans had developed different student loan messages for their voter bases, Republicans would eventually choose to increase funding for federal college aid programs as a matter of political expediency.

“We’ve always seen student aid as a way to buy votes, or not to appear to be working against the middle class,” McCluskey said. “People of both major parties will continually vote to increase student aid, even if they know the realities, because no one wants to appear to be the bad guy” (“Student Debt Rises As Political Issue,” Politico, April 3, 2012).

Romney: Low Student Loan Rates Needed to Offset Obama’s Damage to Economy

Romney also used his message of support for extending the low interest rate on federal student loans to take a jab at President Obama. Romney said Obama created the poor economic conditions that now require taxpayers to help student loan borrowers.

“President Obama’s failed leadership on the economy has led to the weakest recovery since the Great Depression, where 50 percent of recent college graduates are unemployed or underemployed,” Romney said in a statement. “Given the bleak job prospects that young Americans coming out of college face today, I encourage Congress to temporarily extend the current low rate on subsidized undergraduate Stafford loans.”

But Romney’s vote-for-me message was particularly vague when it came time to offer precise solutions, something his critics in both parties have routinely castigated him for.

“I also hope the President and Congress can pass the extension responsibly, that offsets its cost in a way that doesn’t harm the job prospects of young Americans,” Romney added.

“Ultimately, what young Americans want and need is a new president who will champion lasting and permanent policy changes that both address the rising cost of a college education and get our economy really growing again” (“Romney: ‘I Fully Support’ Extension of Low Student Loan Interest Rates,” CBS News, April 23, 2012).

Romney’s ‘Contradictory’ Student Loan Message Blasted by Obama Campaign

Obama campaign spokesperson Lis Smith fired back at Romney, characterizing him as a flip-flopping candidate who “continues to make promises that he can’t keep.”

“While he previously endorsed the Ryan budget, which would make deep cuts to Pell Grants and allow student loan rates to double, and last week said that he would gut the Department of Education to pay for his tax plan, today we heard yet another — and contradictory — position from Romney on student loans,” Smith said.

“As the list of promises Mitt Romney has made to the American people gets longer — from giving $5 trillion in tax breaks to the wealthiest Americans to claiming that he would balance the budget — the numbers just don’t add up.”

President Obama is turning his focus to federal college loans to draw contrasts with Republicans as the White House’s election-year drive ramps up speed ahead of November.

Obama used his weekly address to announce a campaign to pressure lawmakers in Congress to take necessary action that would keep the interest rate of subsidized federal Stafford loans from doubling this summer. A 2007 law that stepped down the interest rate of federal student loans to its current level of 3.4 percent is set to expire on July 1. If Congress fails to act, the interest rate on subsidized Stafford loans would immediately revert to 6.8 percent.

About 7.4 million borrowers would each face an additional $1,000 in student loan debt per year if the interest rate on subsidized federal education loans were to double, according to the White House. Such a prospect, Obama said, is dissuading some lower-income families from considering higher education.

“We should be doing everything we can to put higher education within reach for every American — because at a time when the unemployment rate for Americans with at least a college degree is about half the national average, it’s never been more important. But here’s the thing: it’s also never been more expensive,” Obama said.

“In America, higher education cannot be a luxury. It’s an economic imperative that every family must be able to afford,” Obama said, adding that failing to extend the lower interest rate would be a “tremendous blow” to students and families (“Obama: Student Loan Rate Hike Would Be ‘Tremendous Blow’,” ABC News, April 21, 2012).

GOP Blames Obama for Student Loan Catch-22

Rep. John Kline, R-Minn., who chairs the House Committee on Education and Workforce, blamed the Obama administration for making lawmakers choose between students and taxpayers, who would be on the hook for about $6 billion a year to fund the lower interest rate. Kline said that he and his colleagues were “exploring options in hopes of finding a responsible solution that serves borrowers and taxpayers equally well.”

U.S. Department of Education Secretary Arne Duncan said Friday that the administration would try hard to work with House Republicans to find a compromise but that extending the student loan interest rate would help deal with the short-term problem of saddling debt-burdened students with even more debt.

However, Obama said in his address that Republican opposition to extending the student loan interest rate was indicative of a broader, ideological opposition to government funding for programs that support America’s middle class.

“We cannot just cut our way to prosperity,” Obama said of budget proposals from Congressional Republicans. “Making it harder for our young people to afford higher education and earn their degrees is nothing more than cutting our own future off at the knees.”

“Congress needs to keep interest rates on student loans from doubling, and they need to do it now,” Obama said.

Vermont’s lone member of the U.S. House of Representatives is urging his colleagues in Congress to put aside their partisan differences and take action to prevent the expiration of a law that would allow the interest rate on subsidized federal student loans to double this summer.

Rep. Peter Welch, a Democrat, said at a press conference Monday that if the interest rate on subsidized Stafford loans were allowed to double, from 3.4 percent to 6.8 percent, new loans would cost borrowers thousands of dollars more in interest payments. Over an extended 20-year repayment term for the maximum Stafford loan, the higher interest rate would increase borrowing costs by $11,000, which would further restrict students’ ability to repay college loans and participate in the economy after leaving school, Welch said (“Vt. Congressman Targets Student Loan Rate,” The Boston Globe, April 17, 2012).

“This question of student loans and access to higher education is fundamentally important. It’s ground zero for the middle class,” Welch said. “Are children of middle class families going to have a shot at an education they can afford or are they going to graduate with a financial albatross around their neck?”

Under legislation passed by the Democrat-controlled Congress in 2007, the interest rate for subsidized federal student loans was gradually lowered from 6.8 percent to 3.4 percent. However, the legislation expires this summer and, without action on the part of Congress, the interest rate will revert to 6.8 percent on July 1. The scheduled interest rake has become one of the main spokes in a partisan political debate over higher education financing that’s heating up ahead of the presidential election in November.

Rep. John Kline, a Republican from Minnesota and chairman of the House Education and the Workforce Committee, has said the pending rate hike is the “result of a ticking time bomb set by Democrats five years ago” and that “simply calling for more of the same is a disservice to students and taxpayers.”

Kline’s office has estimated that keeping the interest rate of subsidized federal Stafford loans at 3.4 percent would cost $6 billion a year; Democrats have estimated it would cost $4 billion.

Overall, Vermont college students graduate with an average of $30,000 in student loan debt, sixth highest in the nation. Meanwhile, total outstanding student loan debt has eclipsed $1 trillion, surpassing credit card and auto loan debt.

Welch said that low interest rates for student loan borrowers shouldn’t be a partisan political issue. “It’s caught up in the toxic budget politics,” Welch said. “We all have kids, Republicans and Democrats, who want to make their way.”

It seems that a Republican lawmaker thinks it’s still 1972 when it comes to student loans and their relationship to the cost of a U.S. college education. And a Democratic lawmaker has taken her to task for it.

Rep. Joe Courtney, a Democrat from North Carolina, on Monday criticized Rep. Virginia Foxx, a Republican from North Carolina, over comments Foxx made on the G. Gordon Liddy radio show when Foxx blamed high debt from student loans on the laziness of student borrowers and their unwillingness to work their way through college. Foxx implied that students should borrow no more in student loans than what they did in 1968 and 1972, when she attended college, even though college costs are far higher today than they were 40 years ago.

Foxx drew on the personal experience of her and her husband — as well as language in the Declaration of Independence — to justify her opposition to federal student loans and private student loans:

I went through school, I worked my way through, it took me seven years, I never borrowed a dime of money. He borrowed a little bit of money because we both were totally on our own when we went to college.

 

I have very little tolerance for people who tell me that they graduate with $200,000 of debt or even $80,000 of debt because there’s no reason for that. We live in an opportunity society and people are forgetting that. I remind folks all the time that the Declaration of Independence says “life, liberty, and the pursuit of happiness.” You don’t sit on your butt and have it dumped in your lap (“Rep. Virginia Foxx Attacks People With Student Loans,” Opposing Views, April 15, 2012).

Courtney, speaking on the House floor about preserving the 3.4 percent interest rate on federal Stafford loans, which is set to double to 6.8 percent on July 1 — and add thousands of dollars in interest payments over the life of the average federal student loan — hammered Foxx for her views.

“Incredibly, the chair of the Subcommittee for Higher Education spoke last week in North Carolina and said, ‘I have very little tolerance for people who tell me they graduate with $200,000 in debt or even $80,000 of debt.’ Really?” Courtney said.

“It is a sad statement when today’s Republican party turns its back on a program that helps millions of Americans fulfill their dreams, and that is named after a Republican Senator, Robert Stafford of Vermont” (“House Dem Blasts GOP Comments About Tolerance for High-Priced Student Loans,” The Hill, April 16, 2012).

Student Loan Reality: College Costs Are Up, Buying Power of Wage Earners Is Down

Contrary to Foxx’s views, college students are faced with a challenging reality: as college costs have soared and the buying power of the dollar has fallen, the ability for students to work their way through college has declined precipitously.

In 1972, for example, the average annual undergraduate sticker price of tuition, room, and board was $1,579 at public four year universities and $3,163 at private four-year schools, according to the National Center for Education Statistics. In 2007, the sticker price for a year of tuition, room, and board had increased to $14,203 at public four year universities and $38,400 at private four-year schools. And costs at graduate schools are routinely higher.

In 1972, when Foxx attended college, the federal minimum wage was $1.60 an hour, according to the U.S. Department of Labor. By 2007, 35 years later, the minimum wage had increased to just $5.85 an hour. In constant (1996) dollars, the minimum wage was $6.01 in 1972 but, by 2007, had fallen to only $4.41.

While the average annual sticker price of college between 1972 and 2007 grew 900 percent for public four-year schools and 1,214 percent for private four-year schools, the actual buying power of the federal minimum wage declined by 32 percent while being outpaced by rising college costs by a factor of roughly three to four.