For Nicole Smith, a rising junior at Temple University in Philadelphia who uses both Stafford and Perkins loans, an interest-rate hike could mean the end of her plans to pursue a double major and any postsecondary education. Smith had planned to add a major in social work to her psychology major, which could tack an extra year onto her undergraduate degree, and then pursue a master’s in social work. But when she learned of the rate hike, she said she had to reevaluate.
“I’m already struggling to pay for school as it is,” Smith said, adding that her mom isn't financially stable enough to cosign any of her loans, so the responsibility of paying for school and any student debt up falls on her alone. “I’ll be in debt for years just to get my bachelor’s. I wouldn't be comfortable being in any more debt.”
But without any postsecondary education in her field of choice, there is only so far she can go. “I kind of feel like I’m stuck,” she said. “I feel like there’s no hope.”
Overall, Americans now owe about $1 trillion in student loans – federal and nonfederal -- and that number is growing: In 2011, U.S. students took out twice the value of loans they did in 2001. Recent studies have also found that some students, like Smith and Diaz, are taking longer to graduate due to transfers, changes in major, or simply not taking enough credits annually. That may be part of the reason student debt has ballooned in recent years.
Even so, with the ever-fragile recovery showing signs of a slowdown, and the youth unemployment rate at 16.1 percent in May, many indebted students are asking: Is it worth it?
Kavanaugh, who is working in Washington, took out tens of thousands of dollars in loans to finance his undergraduate education and plans to take out another $100,000 to pay for law school. Even without an interest rate hike, Kavanaugh will pay more for federal loans starting July 1: The Budget Control Act of 2011 eliminated graduate-student loan subsidies, which means that any new Stafford loans taken out by postsecondary students as of July 1 will accrue interest at a fixed rate of 6.8 percent as the students work toward their degrees. Currently, these loans do not accrue interest until six months after graduation.
Kavanaugh is already frustrated with the government for forcing him to pay interest on his future loans while he is still in law school, and still paying off his undergraduate loans. A summer rate hike would just be the cherry on top.
Fawn Johnson contributed.