THE BLOG
06/28/2013 12:13 pm ET Updated Aug 28, 2013

More Debt. Little Understanding. Big Problems.

Student loans are once again grabbing headlines. The issue is the doubling of the interest rate on the subsidized Stafford Loans. Many are outraged at Congress's inability to reach consensus on preventing the rate hike and the additional cost to high need borrowers. But the public outcry shouldn't be just about the incremental costs (an additional $7 month on average) for these borrowers; it should be about dealing with the size of the debt these costs are being added onto and the 37 million Americans with $1 trillion of existing student debt -- as well as their impact on our overall economy.

In the U.S., student debt is the primary way we finance higher education. It is true now and will be true into the future. Borrowing has become an almost automatic part of the college process. The consumer challenge, other than rising costs, is that students sign on the dotted line without considering what the interest rate is, how they will repay it, and how debt will affect their lives post-graduation. The lack of transparency makes it easy to borrow tens of thousands of dollars without understanding the consequences.

At the nonprofit American Student Assistance, which I lead, we often hear from young people through our financial education program SALT. Many don't even know how much they owe, or are unaware of how or where to make payments, let alone how to make payments more manageable -- despite the many options provided to them by Congress.

The problem is not necessarily the interest rate, or the size of the debt, but the borrowers' lack of the timely information they need to manage the debt we give them. This lack of information, especially considering the many options available to federal Stafford loan borrowers, takes a toll on young people, can overwhelm them with anxiety and hopelessness, and affects our overall economy by limiting their ability to finance other major purchases after graduation.

In fact, even before the new interest rate, students who have borrowed are weighing every major decision against the burden of post-graduation debt. They're already spending less, and foregoing a car or a home purchase. Increasingly, graduates can't leave home, let alone buy one. Rising debt is discouraging people from starting families and starting businesses. Double the rates on new loans and young people will be even more nervous about taking steps toward independence.

Barring the appearance of a generous, rich relative, the best antidote to this fear is clear, useful, and timely information and guidance.

Now, in the face of higher interest rates, it's more important than ever that Government, colleges, lenders and unbiased third-party organizations come together to make the borrowing process more transparent and to empower borrowers to make educated decisions before, during, and after school, so that student debt will become less onerous for all.

Are we asking too much of our students when it comes to financing college? Yes. Just ask the growing number of Americans who feel that college is beyond their reach. We owe it to them and to the future to make college financing more affordable and more manageable by making it a more transparent process.

To that end, we applaud those in Congress who want to solve the interest rate issue, not as a one off but as an integral part of reauthorization of the Higher Education Act

Paul Combe is president and CEO of American Student Assistance, a nonprofit that helps students "Face the Red" and take control of their student debt on a practical day-to-day level.

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