As interest rates rise, Washington prepares a state-run student loan program

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As the federal government debates canceling student loans and raising interest rates on future loans, the Washington state legislature is stepping in to make school loans more affordable for students here.

Governor Jay Inslee signed House Bill 1736 in March, establishing a low-interest student loan program to make higher education more manageable for students in Washington. State Rep. Pat Sullivan, D-Covington, who sponsored the legislation, has pushed this idea in the past.

“One of the biggest frustrations I heard from parents was the cost of college,” Sullivan said in an interview with Crosscut, “and from students as well.”

The legislator has advocated a 1% cap on interest rates to make it easier for students as they move on to their next projects. HB 1736 passed both houses on almost a party-line vote.

The Washington program comes at a time when Democratic lawmakers at the federal level are pushing President Joe Biden 一 who has suspended student loan repayments for more than 44 million Americans 一 to reduce borrowers’ student loan debt by 50,000 $, a figure much higher than Biden has indicated he would forgive. According to the text of HB 1736, the Evergreen State has about 800,000 people in debt, with an average debt of about $33,500.

The promise of a low-interest program in Washington may be particularly alluring amid news that federal student loan interest rates will increase for the 2022-23 academic year. Interest rates on federal loans have fluctuated over recent academic years: for example, undergraduate student loans had a rate of 5.05% in the 2018-19 academic year and 2. 75% in the 2020-21 academic year.

“At 17, I thought student loans were an investment,” said Carla De Lira, who testified for HB 1736 on Jan. 31. [dollars in] loans. »

How Washington’s New Loan Works

Washington joins a host of other states that offer their own student loans.

In Massachusetts, for example, residents can access zero-interest student loans that must be repaid within ten years, according to a roundup of state programs provided by the National Conference of State Legislatures. Georgian students enrolled in the state university and technical college systems, as well as those in private schools, can take out loans at a fixed interest rate of 1%.

“We’ve heard stories time and time again about how student debt plagues students, and it’s time to do something about it,” Rep. Sullivan said in a statement. “While the state cannot forgive federal student loan debt, we can provide hope for students to be able to access a college education without incurring crippling high-interest debt that puts things like property out of reach after graduation.

Residents of Washington, which has one of the lowest homeownership rates in the country, have seen the median home price rise from $223,900 in 2011 to $452,400 in 2020.

Washington lawmakers plan to pay for the program with a one-time deposit of $150 million (earlier versions of the legislation targeted a larger investment of $300 million to $500 million). The Washington Student Achievement Council will need to contract with an actuary to analyze the plan, including whether the program can be self-sufficient on loans repaid at 1% interest.

“It makes sense to me that you have a guaranteed rate of 1%, that’s all,” Sullivan said. “You are not at the mercy of anything [federal government] offer at the time.

The council is also responsible for ensuring that institutions prioritize these new state loans for specific groups, including first-generation students and those considered to be on the lowest incomes.

Borrowers aged 18 to 39 and identified as first-generation college students were more likely than their counterparts to fall behind on loan repayments, according to data from the Federal Reserve, which also identified black and Hispanic borrowers (aged 18 to 39) as “disproportionately likely to be behind on their debt.”

Washington Republicans vote

Most, but not all, Republican state officials rejected the legislation.

The bill was heard in the House College and Workforce Development Committee, as well as in the House Appropriations Committee. Rep. Kelly Chambers, R-Puyallup, who sits on both, voted against the proposal, preferring to back measures that put money in people’s pockets so they can run their homes.

“Right now, with inflation, with supply chain issues, with affordability in Washington, we just see the strain on typical working families in Washington,” she said in an interview. with Crosscut.

Chambers noted that the state has made recent investments in higher education. In 2019, lawmakers passed the Workforce Education Investment Act, a bill aimed at making college more affordable for low-income students.

Two GOP lawmakers, Rep. Skyler Rude, R-Walla Walla and Rep. Joel Kretz, R-Wauconda, parted ways with their colleagues to vote yes on the bill. Rude saw interest as a significant obstacle in people’s efforts to repay their loans – a problem he understands personally as someone in debt.

“It’s not 1%, I can tell you that,” said Rude, who hopes to see a shift to interest-free or low-interest loans.

The representative also got involved in the crafting of the bill, when he introduced an amendment ensuring that the program also covers students attending independent colleges in the state.

Rep. Kirsten Harris-Talley, D-Seattle, and Sen. Tim Sheldon, D-Potlatch, voted against the legislation.

What’s left to understand

Elements of the program were pending when HB 1736 passed, including its final interest rate, loan limits, and split between undergraduate and graduate students.

Undergraduate students who meet program requirements are eligible, while graduate students must pursue “a specialized field of study” that is experiencing a labor shortage or high demand.

“At first, I didn’t even consider graduate students,” Sullivan said. “I really focused on the undergraduate.”

That changed when he heard graduate students describe how the main financial aid they receive comes in the form of loans, who will soon experience higher interest rates: while undergraduates can expect to see their rates go up to 4.99% for subsidized and unsubsidized loans, graduate students will see the unsubsidized loan rate increase to 6.54%.

Reanne Chilton, a graduate student pursuing a doctorate in clinical psychology at Washington State University, testified in favor of HB 1736 on February 17. Chilton, the first in her family to graduate from college, described having to rely on state and federal aid to pay for her education because her family could not financially support her education.

“I always knew that I would have to work harder than others to get an education,” she said.

In her testimony, Chilton described turning down an offer to pursue a graduate degree in teaching, believing she could not afford it. She eventually decided to continue her education, which meant relying on student loans throughout her college career to pay for expenses such as textbooks.

“In a perfect world, all students could go to school debt-free,” Sullivan said. “Student loans are part of our system. This is reality, and if so, let’s at least make it more practical.

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