As interest rates rise, students struggle to pay loans
Just after 5:30 p.m. on a warm April evening, a black Nissan Altima pulls up in front of a one-family home in Albany, NY. The historic-style home sits alone surrounded by uneven grass and a small walk-up staircase composed of shattered pieces of brick.On this particular night, the mailbox is filled with so many letters they’re on the verge of falling out. As a young woman dressed in a business casual outfit gets out of her car, a look of exhaustion and worry comes over her face. She sorts through the mail and stops suddenly when she sees her bank’s name on the letterhead. Another student loan payment is now due.
Keiara Marable has been paying back her student loans for the past five months. After graduating from SUNY Oswego with a bachelor’s degree in psychology in May of 2013, she was given the standard grace period of six months before beginning to make payments. Marable was an excellent student, but her grades didn’t help her to receive a sufficient amount of financial aid.
Many students fall victim to receiving less than adequate financial aid packages from universities across the country and are left to pay the balance of their college expenses. “I was accepted to SUNY Oswego on a partial scholarship,” she explains. “At the time the school expenses as a whole came up to about $18,000. My family income is not the greatest as its only a one parent household.”
She sits on the steps in front of her home and continues to read the letter. “Your payment of $200 is due on April 30th. Failure to pay your monthly payment on time will result in a late fee being added to your overall balance.” Her mood changes as she sighs deeply and places the letter behind her.
“It’s really hard. I’m not even going to lie,” she continues. “There are times that I missed monthly payments and because of that my credit is being affected negatively.”
Increasing interest rates
According to the Consumer Financial Protection Bureau, student loan debt has reached the $1.2 trillion mark and is the second largest source of household debt after mortgage. A new report released by the Congressional Budget Office early this month states that the government is set to raise interest rates again. According to Janet Lorin, a Bloomberg News higher education news reporter, the government pegged interest rates on most student loans to the 10-year Treasury note, meaning they are tied to the market, and on the rise.
While interest rates are fixed for the life of an education loan, borrowers take out separate federal or private loans for each school year. For the 2014-2015 year, interest rates are said to be 5.1 percent for undergraduate Stafford loans, 6.6 percent for graduate Stafford loans, and 7.6 percent for PLUS loans. Private school loan rates currently range from 6 to 12 percent. With the threat of increasing interest rates, students who take out private school loans run the risk of owing the government even more money.
“The whole infrastructure of college is a business,” Marable says. “From tuition, books, to student loans – it’s business. It’s unfortunate because college is already unaffordable and slapping interest rates on loans is wrong.”
Nikki Lavoe is a spokesperson for Navient, a loan management company that has recently parted ways with Sallie Mae. Navient focuses on servicing clients with federal education loans and helping them successfully pay off their student loans and build credit. Lavoe understands students’ frustration and is devoted to helping them recover from debt. “Navient promotes awareness of federal income driven plans through more than $50 million communications annually,” Lavoe says. “We work hard to help customers who have defaulted on their loans get back on track and reestablish their credit.”
Dealing with debt
As the epidemic of student debt grows in this country, many loan service companies urge students to utilize payment plans to pay off loans. Anigail Harper, senior communications media analyst for Sallie Mae explains the options they offer student borrowers. “Sallie Mae is always willing to work with borrowers if they’re experiencing difficulty,” Harper says. “We encourage students to start making interest payments while they’re in school to reduce the overall life of the loan.”
Although loan companies allow students to pay interest while they’re enrolled in school, in many cases students simply do not have the money to do this. “Students are given money to fund their education but there is no way anyone could pay off loans that quickly,” said Mae Hamilton, law student at Hofstra University who currently owes the government over $100,000 in student loans with a 3.86 percent interest rate.
Dani Casper, a Capital One Banker who specializes in servicing student loans, has seen first hand that every student has a unique situation that causes him or her to take out loans . “Many students look at student loans as an acceptable debt to have as opposed to credit card debt,” Casper says. “Students are told that in order to secure their futures, college is mandatory. The fact remains that with college expenses increasing, students are not able to afford paying out of pocket for their education, so their only choice is to take out loans.”
Since the government sets student loan interest rates each year based on the last auction of Treasury 10-year notes prior to June 1, loans disbursed after July 1 will reflect new rates. However, Marable urges students to think before accepting student loans. “Having an education in this country is extremely important in order to establish yourself post-graduation. With that said, there is no way to start your life with the financial burden of paying back student loans with an insane interest rate. It’s something serious to think about. This can stand in the way of bringing your future plans into fruition.”