Student loan debt is about to become a crisis. At the end of the month, subsidies for federal student loans are scheduled to expire. The formerly subsidized loans will be at an interest rate that is higher than a home mortgage interest rate.
The interest rate spike will suck money out of the economy at a particularly bad time. At a time when the Fed is looking for new ways to lend money to banks at near-zero interest rates, it will be particularly shocking for the interest rates that college students pay to suddenly double.
The most troubling part of this shift in policy is the message it sends to students: if you trust in the system, someday it will turn on you. That message too can only have a chilling effect on an already struggling economy.
