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The Tufts Daily
Where you read it first | Monday, April 15, 2024

Tufts tuition, high interest rates and student loans

Elevated interest rates are hurting everyone, and Tufts can do more to support affected students.

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The Federal Reserve building is pictured in Washington, D.C.

College students in the U.S. have certainly had an interesting education experience: Many current students attended school through a global pandemic, navigating virtual classes and adjusting to a new version of socialization. The U.S. took drastic actions to combat the economic impact of the pandemic. The country is now starting to feel a series of economic aftershocks, particularly affecting students, which I believe is due to actions of both the Trump and Biden administrations.

As I stated in one of my previous articles about Environmental Protection Agency regulations, I am not going to spend time debating the causes of inflation. There are a multitude of factors and arguments, each of which has merit. That said, it cannot be denied that inflation is a significant economic issue in this country. A core principle of macroeconomics states that to curb inflation, the central bank can raise short term interest rates, thus making it more difficult to access capital for cheap and discourage people from spending excessively. The interest rates that the Federal Reserve (a.k.a. the Fed, our central bank) governs exert influence on many other rates, including mortgage rates which recently reached a 22-year high. The Wall Street Journal’s Gina Heeb explains that, as of July, 44% of the median American household’s annual income was required for mortgage payments on a median priced home, which is nearly the highest percentage recorded since 2006.

One category of interest rates that has not been widely covered is student loans. Changes to student loan interest rates come from a formula enacted by Congress in the Higher Education Act of 1965, with the current version of the formula debuting in 2013. In concert with this formula is the Federal Funds Effective Rate. The FFER, which is notably parallel to the 10-year treasury rate, corresponds strongly with student loan interest rates. Between 2020 and 2023, the average undergraduate Federal Direct Stafford Loan interest rate nearly doubled from 2.75% to 5.498%, in large part due to the Fed’s decision to hike interest rates in response to inflation.

While incremental increases in interest rates might seem irrelevant, according to Forbes’ Adam S. Minsky, “a half-point percentage increase in the interest rate on a $30,000 federal student loan balance can translate to $3,000 in additional interest the borrower will pay over a 25-year repayment term.” Past borrowers are less likely to be affected because these rates are fixed over time (similar to a 30-year fixed rate mortgage). However, inflation is on the rise again, with the August Median Consumer Price Index showing core inflation at above 4%. As long as inflation remains elevated, federal interest rates will do the same, resulting in new borrowers paying vastly more compared to their pre-pandemic counterparts — an issue that affects thousands of Tufts students.

Bidenomics strikes again! Only 34% of Americans approve of how he’s handling the economy. The Fed has missed much of the economic turmoil we have experienced, including Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell’s infamous 2021 claims that inflation would be “transitory. The economy is devolving, and students are just one subset of the population that continues to be deeply affected.

Ultimately, the effects of Bidenomics will trickle down to students, and schools like Tufts need to do more to provide resources and solutions. Financial aid is just the beginning — Tufts can help facilitate connections between students in need and private loan providers. The Fed plans to hold interest rates at their 22-year high, though an additional rate hike in 2023 is not out of the question. Tufts needs to adapt to accommodate the needs of students and their parents. The cost of tuition has been steadily rising, and the university needs to take action to ensure all students can comfortably afford their Tufts education. For starters, the rise in tuition costs needs to be curbed. As of Aug. 2022, Tufts is the fifth most expensive school in the U.S. It would be amazing if Tufts could set an example for elite institutions in the U.S. by lowering tuition and making the school much more financially accessible. On a similar point, Tufts can and should adapt the meal plan options. As Toby Winick wrote a little over a week ago, the removal of the double-swipe policy at Hodgdon Food-on-the-Run and Kindlevan is harmful to students already paying full price for the 400-swipe meal plan, as mandated by the university for all freshmen. I’m old enough to remember when during the 2020–21 school year, all Tufts dining establishments accepted meal swipes, including Commons, Hotung Café and Mugar Café. While this policy was instituted to keep students from going off campus, it felt like how an unlimited meal plan should be — unlimited. Although I didn’t use all my swipes, I at least had the opportunity to do so. The bottom line is, Tufts can do better to support students who are struggling now more than ever due to the current macroeconomic environment.