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

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

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