Playing politics with loans doesn't help students

Reuters

Article Highlights

  • Should the rate on subsidized Stafford loans be 3.4%, 6.8% or somewhere in between?

    Tweet This

  • Last year's election-induced "panderfest" answered the #studentloans question by not really answering it at all.

    Tweet This

  • Current debate about the interest rate on subsidized #studentloans is a case study in dysfunctional politics.

    Tweet This

Editor's note: This article orginially appears in US News & World Report's Debate Club in response to the question: "Should student loan rates be allowed to double at the end of the month?"

The current debate about the interest rate on subsidized student loans is a case study in dysfunctional politics. In the nation known for its visionary higher education ideas, from land-grant colleges to the GI Bill, we've spent months fixated on this decidedly narrow policy question: should the rate on subsidized Stafford loans be 3.4 percent, 6.8 percent or somewhere in between?

Last year's election-induced "panderfest" answered the question by not really answering it at all: both presidential candidates called for a year-long extension of the low rate, saving borrowers about $9 a month, costing $6 billion and setting the stage for more drama this spring.

But this year's debate has been even more discouraging, as some leaders – President Obama in particular – seem determined to manufacture disagreement where there should be common ground. Both the president (in his 2014 budget) and congressional Republicans (in a series of bills) have expressed support for tying interest rates to the 10-year Treasury bill plus a couple of percentage points.

Because interest rates overall are low, the market-based approach would prevent those on subsidized Stafford loans from doubling; better yet, it would get congress out of the business of setting interest rates and would more accurately reflect the government's cost of borrowing. The two sides differ on the specifics, to be sure, but that's what the negotiating table is for.

Instead, what should be an easy fix has metastasized into political theater. When the House passed a market-based proposal in May, the president threatened a veto; in the Senate, neither a two-year extension from Democrats nor a market-based proposal from Republicans could pass a cloture vote. It's now June 21st, and our elected leaders are still trading barbs and staging rival press conferences rather than hammering out a compromise that would serve students and taxpayers better.

So, should rates be allowed to double on July 1? Perhaps, if that's what it takes to get lawmakers and the president back to the negotiating table. Student advocates will cry foul and each side will accuse the other of selling out America's future. But the beauty of letting the low rate sunset is that the conversation shifts from whose rates you're going to increase (a political loser) to whose rates you're going to lower. And these roadblocks tend to get resolved quickly once constituents recognize that the change will hit them in the pocketbook.

Then again, all may not be lost. This week, a compromise market-based approach emerged from a bipartisan group including Democrat Sen. Joe Manchin, W.V., Independent Sen. Angus King, Maine, and Republican Sen. Tom Coburn,Okla. The proposal would keep the rate on subsidized loans from doubling and would actually lower those on unsubsidized loans. Regardless of what happens to this specific proposal, this is where conversation should have started two months ago. In a world with pressing higher education problems, the interest rate debate has already consumed far too much time and energy.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Andrew P.
Kelly

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.