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Higher student loan interest rates reduce educational opportunities

Ben Harten | 6/27/2013, 11:58 a.m.

Student loan debt is more than $1.1 trillion and is greater than the amount consumers owe on their credit cards. That is a huge sum, yet little was known about the impact of this debt on American society. The Urban Institute, a non-partisan Washington, D.C. think tank, just completed a study on the scope of this debt.

They found that 19.6 percent of all adults over 20 years of age had some student loan debt. It is not just a problem for low income families. While 20 percent of those with household incomes under $25,000 have such debt, the more affluent have not fared much better. Those earning $100,000 or more are only 2 percent less at 18 percent.

Not surprisingly there is a great racial disparity in student loan debt. Only 16 percent of whites and 19 percent of Asians have such financial burdens, the rate jumps up to 34 percent of blacks and 28 percent of Hispanics. There is clearly a financial problem with the educational advancement of minorities.

Somewhat surprisingly, the problem of student loan debt extends even to those with limited academic achievement. According to the report, 9 percent of those with only a high school diploma as well as 25 percent with some college but no degree have student loan debts. Thirty percent of college grads and 28 percent of those with advanced degrees struggle to repay debt incurred to finance their education.

A major source of student loans are provided by the government, about 7.4 million Americans with federal Stafford Loans will see the interest rate jump from 3.4 percent to 6.8 percent on July 1.

With time running out, Democrats in Washington want to hold the rate at 3.4 percent. Republicans want to set the rate at the 10-year U.S. Treasury bond rate, plus 1.85 percent for undergraduates. For graduate students, the rate would be 3.4 percent above the 10-year bond rate.

The national education policy is to enhance academic opportunities so that Americans are properly trained to lead the global economy. In order to do this, higher education must become more affordable.