Your College Debt Is Destroying Higher Education, Here’s How

Student loan interest rates are set to rise again on July 1st 2014. Unsubsidized Stafford loans are set to rise 6.21% from last year’s 5.41%. Direct PLUS loans are set to rise 7.21% from last year’s 6.41%.

Last year, Congress was faced with a doubling of student loan interest rates from the 2013 rate of 3.4% to 6.8%. To prevent rates from doubling Congress schemed and passed legislation to peg federal student loan rates to yields on 10 year Treasury notes which means the rate will still go up every year.

Except rates cannot rise infinitely. Part of the legislation passed by Congress put a cap on Stafford loan interest rates. The cap is currently set at 8.25% for Stafford loans and 10.5% for PLUS loans.

This week billionaire investor Mark Cuban came out predicting the bubble is going to burst.

“College tuitions have exploded because of easy money guaranteed by Sallie Mae. If any student or potential student can borrow more and more money, and it’s guaranteed by the federal government, why wouldn’t the colleges take it all?”

The student loan bubble is predicted to currently be 1.2 trillion dollars. This debt is having a severe impact on the economy by preventing growth in other areas of market sectors. It is preventing student borrowers from buying houses, buying cars, or increasing consumer spending.

“I think that bubble is going to burst. I think it’s inevitable, at some point, there will be a cap on student loan guarantees. And when that happens, you’re going to see a repeat of what we saw in the housing market: When easy credit for buying or flipping a house disappeared, we saw a collapse in the price of housing, and we’re going to see that same collapse in the price of student tuition. And that’s going to lead to colleges going out of business.” Thought Catalog Logo Mark

image – Bossi

More From Thought Catalog