Current interest rate on new government student loans

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A growing and alarming number of people have more than $1 million dollars in student loan debt. While the government has passed some legislation to curb undergraduate student loan borrowing and terms, little has been done for graduate students. Even when universities warn students of the cost of borrowing and recommend trying to make interest payments while in school, many students are unable to comprehend the effects of compound interest. The subject of the article borrowed around half a million dollars for orthodontist school, but with compound interest and fees, the balance has risen to over $1 million dollars. The interest rate and borrowing cap is not regulated for grad students. He is on an income-based repayment plan, allowing his payments to cover less than the monthly interest expense so his balance continues to grow, with the balance of the loan forgiven after 25 years (though he must pay income taxes on the forgiven amount). In the meantime, he makes $225,000 a year and lives a nice cushy lifestyle since he is not forced to pay more than 10% of his discretionary income.

What is the current interest rate on new government student loans for graduate students? Do you believe this rate should be higher or lower, and why? How does it compare to interest rates for undergraduates?

What do you think is the solution to the student loan debt crisis? Do you blame schools, students, banks, or the government?

Do you think student loan forgiveness programs are an appropriate solution to outrageous student loan debts? Why or why not?

Reference no: EM132073184

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