Despite better economic conditions, college students face financial uncertainties

David Dam

Congress passed the Bipartisan Student Loan Certainty Act of 2013 that pegs the interest rates of federal student loans to 10-year Treasury note yields, a market-based rate. The interest rate for the duration of a single loan won’t change, but loans taken after July 1 of every year may see different interest rates.

However, 10-year Treasury note yields are on the rise, meaning that interest rates for new loans taken after July 1, 2016 could be higher. This is due to speculation that the Federal Reserve would raise short-term interest rates if the US economy continues to add more jobs.

Even if this means that the interest rate for federal student loans could rise, it shouldn’t be a long-term change. Economics professor Olivier Coibion said he believes that this rise is a result of expectations that the Fed would raise rates, and there would be little difference in the long-term.

“Long-term interest rates (like 10-year Treasuries) primarily depend on the market’s expectation of future short term interest rates,” Coibion said in an email. “[To] the extent that the Fed raises rates along the timeline currently anticipated by financial markets, there will be little to no effect on long-term rates from the Fed raising short term rates.”

While those with federal student loans may not see their interest rates rise, they still face financial difficulties. From 2004 to 2014, student debt upon graduation increased by 56 percent. Current student loan debt is believed to be around $1.3 trillion.

The UT Board of Regents approved a plan in October to increase tuition rates roughly 2 percent. Business and government freshman Doug Snyder believes that if the System increases tuition, it should also provide financial support.

“The rate of tuition here should not be raised without accommodations given towards lower income families,” Snyder said. “We lag miles behind the world in regards to college costs, with pretty much every other developed country either offering some form of free college education or assisted payment program.”

While tuition increases are controversial, they are vital to the University’s financial stability. If UT functioned solely on tuition from students, the University would shut down during the first week of November.
The US economy is undoubtedly improving, providing a better job environment for graduating students. Even with the rise in short-term interest rates, interest rates for federal student loans are largely unaffected.

However, students face massive financial burdens, illustrated through record-high student loan debt and prospects of tuition increases. If these problems are not addressed properly, the US will face massive economic repercussions in the long-term.

Dam is a linguistics and Spanish freshman from Cedar Park. Follow Dam on Twitter @daviddamwrite.