Inflation and student loan rates are creating unsustainable debt

This is a reposting of an article I wrote for The Michigan Daily in Sept 2022.

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As someone who teaches classes for brand-new incoming students, the fall is an exciting time. I get to watch all these beautiful humans exploding into new things. There’s so much potential. As a first-generation student myself, I often find myself having conversations with other first-gen students. Sometimes those are amazing, as I get to watch new students gape at all the possibilities in front of them. But often there is a hefty batch of nervousness, particularly around the amount of debt required to come to Ann Arbor. These students can expect to finish undergrad with tens of thousands of dollars in debt and quickly-compounding interest on top. Nationally, the student debt burden worsens for first-generation students or those from lower/working-class  or racially minoritized families.

So I’m always worried about my students. But this year has been especially troubling for me, largely due to something we’re not hearing enough about: the relationship between measures used to target inflation and increasing student debt.

There’s no reason to go very deep into rampant inflation and the Federal Reserve’s interest rate hikes in response. That discussion is happening literally everywhere.

What we do need to talk more about is the fact that these solutions have saddled college students with a disproportionate share of the burden. That’s because, when the Fed raises interest rates to slow inflation, the yield on 10-year Treasury bonds goes up. Basically, these rates are what the government pays out to people who invest in it – the returns on American debt. For college students, this is important because, since 2013, student loan rates have been tied to treasury bond rates. The cost of student loans is linked to the cost of federal debt. But there’s one important thing to notice: student loans tack on another 2.05% on top of the treasury bond rate. That’s right. Here in America, we charge our kids more to borrow money for schools than the lender pays out when it borrows money. We expect to make some side cash from students going to school.

This disgusting price gouging is another example of the ways current financial policies push off the cost of unsustainable capitalist growth on future generations. Young people did not cause the current rates of inflation, but they will be harder hit in the short term by a recession in response to interest hikes. In the long run, they will also be worse off if they have to take on costlier loans on their own futures to stabilize the economy. Perhaps the most obscene thing is, when inflation eventually does go down, rates on treasury bonds will too. But student rates are locked in. Today’s students will pay high rates on the loans they take out this year, no matter what the economy looks like when they graduate. Something has to be done.

Of course, there are a lot of ways we could do better by college students. Eliminating student debt altogether while also moving forward to include college in our national promise of free universal public education would make the most sense. Re-instituting funding for public universities at levels that reduce the need for rapid yearly tuition hikes would likely help a bit.

But while we’re pushing the Biden administration and Congress to eliminate the unsustainable costs of education, we should support those arguments by pointing to concrete evidence of why current policies are designed to prey on students. The way rates are calculated and locked in are predatory.

I don’t want the government to make money off the amazing people I look forward to meeting every semester. I don’t want our excited conversations to drift into fear about how to pay back loans down the road. I don’t want to combat inflation on the backs of the next generation. And I certainly don’t want to continue the cycle of indebtedness that supports this whole broken system. We can do a lot better.