Fixed Rates

Student loan fight

On July 1, the rate paid by new recipients of federally subsidized student loans jumped from 3.4 percent to 6.8 percent. Lawmakers knew the agreement setting the lower rate was set to expire but did not act in time to keep it from doubling.

After having missed their due date, members of Congress started pulling all-nighters in an attempt to figure out how to keep offering this expensive giveaway to young voters and their anxious parents. It has not been lost on Democratic lawmakers that student loans were one of the major issues animating the Occupy Wall Street movement. 

While the loan debate was heating up on Capitol Hill, the Congressional Budget Office released a report showing that the proposed reforms, which would tie loan student rates more closely to market rates and impose an overall cap, would cost about $22 billion during the next 10 years. The report sent congressional negotiators scrambling for budgetary cover in time to get the deal passed before students started signing up for loans again in August. On July 31, the House fiddled the rates a bit and passed a bill, which the president promised to sign as of press time.

Former students in the U.S. currently carry more than $1 trillion in debt. A full 11 percent of all student loans are at least 90 days overdue, almost twice the rate a decade ago. (Student loan obligations are one of the few types of debt that cannot be discharged in bankruptcy.) But making loans cheaper likely will encourage students to take on more debt, not less.