Perhaps sensitive about a looming doubling of student loan interest rates, and reports of their indifference to the plight, House Republicans sent a letter to the President with a new proposal for how to structure an extension of the existing rates.
Everyone agrees – in public, at least – that interest rates on Stafford federal student loans should not double, from 3.4% to 6.8%, on July 1. The difference comes over how to pay for it. Given cheap borrowing costs, a sluggish economy and the small numbers involved, about $6 billion, the correct answer is actually “don’t pay for it.” But that won’t fly in an age of austerity so here we have the debate. Democrats want to raise taxes on the rich or corporations and Republicans want to cut spending elsewhere. And that’s the impasse.
House Speaker John Boehner called the debate “phony” in a caucus meeting, according to several reports. But walking that back, he co-authored this new proposal, along with Majority Leader Eric Cantor, and Jon Kyl, a member of the Senate leadership. Here it is:
Two alternatives were offered for paying for the student loan freeze. In one, the costs would be offset by increasing the amount paid by federal employees for their retirement.
In the other, a freeze on loan rates would be paid for through a combination of items: shortening the period during which part-time students would be eligible for federally subsidized loans; limiting the ability of states to recoup Medicaid costs through taxes on providers, which would lead to a slight reduction in Medicaid use and, therefore, lower costs to the federal government; improving coordination with states and local governments to reduce Social Security overpayments.
Basically, Republicans found a few items that Democrats generally oppose but that the Administration has offered in previous budgets in some form. The budgets have called for, in one way or another, increases in federal employee health contributions, rolling back loans for part-time students, reducing overpayments to Social Security, or this roundabout way to reduce Medicaid costs. The last one is really insidious, especially for “states rights” Republicans: they want to stop states from funding Medicaid on their end in the way they may choose, which would lead to an overall reduction in utilization, because the program wouldn’t be funded as well. So the goal is to kick people off Medicaid to save money, through protecting wealthy health industry providers from a tax burden.
This gambit, sadly, has worked before, picking off the White House with a pay-for they previously proposed and applying it to some sought-after goal. It’s why these concessions shouldn’t be made, because inevitably Republicans cherry-pick the stuff they like and throw out all the rest, and the Administration sheepishly goes along with it. We’ll see if that works here, or if there will be a counter to the counter-offer, or if students will see their interest rates on loans double.
…more broadly, the interest rate issue is bad, but not nearly as bad as the soaring cost of higher education, which is driving demand for these loans. We’ve essentially priced out entire classes from higher education, the number one way to move up the economic ladder in America over the last century. And we saddle our young people with mountains of debt as they leave college, leading to high delinquency rates – especially in a time where youth unemployment is so high – and knock-on effects throughout the whole economy. Recent graduates with huge debt don’t buy cars or houses. This depresses economic performance and demand. And it’s practically immoral to close the door to social mobility by pricing out higher education. That’s the problem to tackle, the loan rates are a side effect.