Why The Student Loan Deal Is Bad News For Students

Why The Student Loan Deal Is Bad
News For Students (INFOGRAPHIC)

College students and their families are set to enjoy lower borrowing costs this fall at the expense of future borrowers under a measure approved by Congress and to be signed into law by President Barack Obama.

The proposal overwhelmingly passed the House of Representatives on Wednesday with nearly 400 votes. The Senate version on July 24 garnered more than 80 votes. The bill was sent to Obama on Thursday. He’s likely to sign it into law this month.

But as the Obama administration and congressional leaders celebrate what they tout as a victory for students, a review of projections and figures compiled by the White House, Congressional Budget Office, College Board and other sources suggests that the legislation may end up doing more harm to household budgets than Washington officials acknowledge.

Beginning as early as two years from now, students and their families are projected to pay more for government loans to fund higher education than they paid in this most recent academic year. The government’s profit from student loans is set to increase. And the growing gap between rising college costs and stagnant student loan limits may exacerbate the economic problem posed by student debt.

With overall student debt at $1.2 trillion and counting, U.S. households are increasingly putting off home and car purchases in favor of paying down student debt — a development that has officials at the Consumer Financial Protection Bureau, Treasury Department and Federal Reserve worried about the current economic recovery and future growth.

Raising the cost of future loans is likely to make this problem even worse.

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