Should New Student Borrowers Be Charged What Older Ones Are?


Should Stafford program student loans originated on July 1, 2012 and later have interest rates of 6.8 percent rather than 3.4 percent? That's the topic du jour and like many such issues, the quality of discussion suffers from total agreement across Republican and Democratic lines.

Both parties want to keep the loans, which are already subsidized by taxpayers in a variety of ways, even more subsidized. The rates started going down in 2007 as part of a Bush-era plan; the cuts expire in the summer.

Both parties agree that keeping the lower rates in place for another year is the thing to do and both parties apparently agree that doing so will cost taxpayers an additional $6 billion. They disagree about how to pay for them.

When it comes to that, each side has in effect taken a political hostage: House Republicans would cut spending from Obama's prized health care overhaul law, Senate Democrats would boost payroll taxes on owners of some private corporations and House Democrats would erase federal subsidies to oil and gas companies.

Before moving on, let's at least note that at least they're talking about paying for them. That's progress, of a sort, I guess.

I've read accounts that the Obama administration claims the difference in rates could mean borrowers would pay anywhere from $1,000 more a year (New York Times) to $1,000 more over the course of the loan (many places), neither of which seems accurate. Using this loan calculator, a $10,000 loan at 6.4 6.8 percent paid back over 10 years (the repayment period allotted Stafford loans) would cost a total of $13,810. At 3.4 percent, the total would be $11,810, for a difference of $2,000.

What I haven't read, really, is a case for simply letting the rates go back to 6.4 6.8 percent. I understand that it's an election year so nobody wants to be seen as making anybody pay for anything (and the cynicism of extending the rates for a single year underscores that it's an election year). But there is little indication that the increase on new loans would actually price prospective students or borrowers out of the market (the repayment period wouldn't begin until after the students either graduated or left college), so letting the (still-subsidized) rate go back to where it was a few years ago would have minimal impact on students or the current economy.

I used student loans to pay for part of my undergrad and grad school years (at significantly higher rates than 6.4 percent, alas). I think college is important for intellectual reasons and others (I also think college is far more than a jobs-training program, which an appalling number of rightists and leftists seem to be arguing these days). I don't think costing yet more of that experience onto taxpayers is a particularly good thing to do. These loans are voluntary, after all, and there's every reason to believe that the free and/or heavily subsidized money via government that flows to colleges is a major reason for the rampant cost increases in higher ed.

Only half of all college kids take out any sort of loans and the typical graduating student who takes on debt graduates owing $25,000. (For more in this vein, go here.) That's not an incredible burden to bear, especially when you factor in the increase in earnings that go along with the amount. It would be a great world, I suppose, if nobody ever had to pay for anything and all colleges were free. But that would take, what, professors and administrators and janitors and rec center employees all donating their time, right? There's no question that college is worth a hell of a lot and there's no question (in my mind) that it's worth paying for. Especially by the person who is the chief beneficiary. 

The country is trillions of dollars in debt and the Republicans and Democrats' response to this has been to propose 10 year spending plans that do not balance the budget or cut spending in any way, shape, or form. As Obama administration officials like to remind us, "the time for austerity is not today." The Republicans agree, of course, they just prefer to strike a different pose in public.

Which helps explain why we're even in the situation we're in. The current discussion over student loan rates simply makes clear that we're going to remain stuck in this situation for a very long time to come.

Watch 3 Reasons Not to Bail Out Student Loan Borrowers: