Leading Democrats and the White House have taken note of the threat of a doubling of the student loan interest rate by June 30 (from 3.4% to 6.8%), and are working on steps to prevent it. However, they have to contend with a stingy House GOP that isn’t interested in finding the $6 billion or so annually that would stop the interest rate increase.
The Democratic strategy consists of shame and politics: Their way, they say, will save thousands of dollars for college students who already are swimming in debt. And if the Democratic lawmakers don’t get their way, parents signing tuition checks will be hearing about it ahead of the election.
“It will be a very potent issue, certainly on college campuses but definitely for students’ parents who are going through the financial aid process on the eve of the election,” said Rep. Joe Courtney (D-Conn.), who is sponsoring a bill backed by 109 Democrats to hold the rates down on the government-subsidized Stafford loans.
House Education and the Workforce Committee Chairman John Kline (R-Minn.) says that though he’d like to reduce college costs, paying for the loans with deficit spending isn’t the right way to go — and the only alternative would take away from other programs in his own budget for higher education financing.
So Courtney said Democrats are aiming to move a bill through the Senate to force the House’s hand. Among the options is Sen. Jack Reed’s (D-R.I.) measure to set interest rates on Stafford loans at the current 3.4 percent.
This is certainly a winnable issue, though I fear it’s seen as more of a club that will be used to beat Republicans over the head in advance of the elections.
There’s no question that rising student costs and the debt crisis in student loans are widely know on college campuses. Just a couple miles from my house yesterday, over at Santa Monica Community College, 30 people were pepper sprayed as part of a protest against increases in course fees. The protesters wanted to be heard at a board of trustees meeting that sought public comment about the higher fees. At least one child was injured in the pepper spray attack.
It’s no surprise that a substantial amount of the energy from the Occupy movement has come from students and young people. Soaring prices have walled off higher education for many young people, or forced them to drown in debt, which cannot be discharged in bankruptcy. 37 million Americans currently owe money on student loans, and the balances have reached beyond $1 trillion, according to the Consumer Financial Protection Bureau. This mountain of debt has knock-on effects throughout the economy.
Doubling the interest rates on Stafford loans would increase costs over a decade to between $2,800 and $5,000 per individual. Meanwhile, US government borrowing rates to fund this are near zero for something that’s effectively an investment in our future.
Democrats may be able to find an offset to cover the costs of the interest rates for a year or more, but House Republicans have insisted that the offset must come from within the higher education budget, which is far more unlikely, and would amount to robbing Peter to pay Paul. The overall policy goal of making college affordable and within reach for anyone with the skills and abilities to attend doesn’t seem to be broadly shared in Washington. And it’s going to kill US competitiveness in the future.