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Student loans: Are you signing your life away?

By Lana KrilyukSPECIAL TO THE CHRONICLE

Do you want a consolidated government backed loan? What is your loan interest rate? If you can answer these questions, you may already know your way around student loans, but many students do not. Most of us are blindly signing documents that put us in hundreds of thousands of dollars of debt.

According to Marketwatch, student debt totals $1.2 trillion nationwide, which is more than all the credit card debt nationwide. So it is no surprise that student loans are keeping 20- to 30-yearolds from buying houses and cars, and from affording to begin an independent life.

Senator Elizabeth Warren’s (D-MA) bill – Banks on Students Emergency Loan Refinancing Act – is this politician’s plea to help students pay off their student loans. Though this bill was defeated through filibuster earlier in the year, it will have a second chance as early as this week.

Banks on Students Emergency Loan Refinancing Act proposes a cut on interest rates for existing loans. Basically, it proposes refinancing existing student loans as you would a mortgage or a business loan. Still, this language may be obscure to most college students, so lets put it in perspective.

If you entered college prior to July 1 of last year, your interest rate is locked in and is higher than the interest rates today, which is about 4 percent on federal loans (much higher on private loans), meaning you will pay more on a loan of the same amount than someone who took that loan out today. This bill would take that higher interest rate on which you took your student loan and recalculate the amount you are paying with the lower interest rate.

According to Sen. Warren, this can be done by closing a millionaire and billionaire’s tax loophole that allows these high earners to pay a lower tax rate than middle-class earners. This way, the government would not be losing any money, because the closed loophole would make up for the loss by lowering the rates.

Though the bill did not pass last spring, it got every Democratic vote, every Independent vote and three Republican votes. Despite the filibuster, Sen. Warren hopes that next week, it will receive those last few votes needed to override a filibuster.

Sen. Warren notes that numerous graduates are defaulting on their loans; they simply do not have the money to pay the loans, or if they do pay, then they cannot buy houses and goods. This can have an impact on our economy because if people do not buy and put money back in the economy, the economy suffers.

Additionally, if there is high default rate, then banks must charge more interest to make up the money for those who defaulted on their loans.

If interest rates are, in fact, lower than they were before, but graduates are still defaulting, it may be because the education they are getting is not putting them at an advantage in the job market, so they are unable to get a job that pays enough to pay off the loans.

The rising cost of college, a tough job market and too-high interest rates for student borrowers all contribute to the problem of crippling student loan debt, but one thing is definite: if students are not educated about their loans, then they cannot make smart choices about them.

The views and opinions expressed in the Op-Ed section are those of the authors of the articles. They are not an endorsement of the views of The Chronicle or its staff. The Chronicle does not discriminate based on the opinions of the authors.

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