The President is on a college campus tour advocating for congressional action to keep interest rates on Stafford loans fixed at 3.4 percent/ Unless Congress finds $6 billion by this July, rates are set to rise on Stafford loans to 6.8 percent. The White House says this is unacceptable:
“For some time now, I’ve been calling on Congress to take steps to make higher education more affordable – to prevent these interest rates from doubling, to extend the tuition tax credit that has saved middle-class families millions of dollars, and to double the number of work-study jobs over the next five years.”
College affordability is something Gov. McDonnell harps on as well. He has asked Virginia’s state-supported schools to minimize tuition increases, linking them to the Consumer Price Index. He also hoped that the additional funds the state is providing colleges and universities will help:
“Both the General Assembly and I proposed this new state funding for higher education with the clear understanding that institutions will temper the need to raise in-state tuition and fees this coming year.”
That $230 million pool of new state cash should help mitigate tuition increases. But writing in Reason, Ira Stoll contends that all the money states like Virginia are pouring into higher ed, coupled with the President’s demand for further subsidized student loan rates, doesn’t provide a complete picture of the “higher-education industrial complex”:
Mr. Obama wants to argue that in addition to the Pell Grants and the research funding and the charitable tax exemption for contributions and the tax exemption for education-related municipal bond offerings, taxpayers should also foot the bill for subsidized student loan interest.
The effect is to obscure the price signal sent by the tuitions. If it were private lenders rather than President Obama setting interest rates, one might begin to see competition in rates. Students entering fields likely to yield jobs might get loans at lower rates, while those entering fields with worse job prospects might be charged higher rates. Students with better grades might earn lower interest rates. Lenders might charge different rates to students at different schools, depending on the track records the students at the various schools have at repaying the loans. If the money were being offered at market rates rather than subsidized rates, there might be more pressure from the students to bring down the tuitions, and thus the salaries for the presidents and football and basketball coaches.
Possibly. But the question of distorting price signals is worth considering.
When something is subsidized, we usually get more of it. So I ask readers this: will either the President’s proposal, or the Governor’s for that matter, tame tuition increases? Or will the loan subsidies and increased state funding result in continued tuition increases?
