Bipartisan pandering over student loan rates

The House is scheduled to take up HR 4628, a bill that would keep at bay, for one year, the interest rate hike on Stafford loans.

The President has been making a tour of college campuses touting the idea, and he’s gotten a great deal of bipartisan support. In Virginia, Eric Cantor issued a statement saying the House…

…is committed to making sure student loan rates remain affordable, especially with rising tuition costs and college graduates facing an uphill climb in the job market. Rather than letting student loans become a pawn in the latest political fight, the House will show our commitment to our nation’s students and extend the current rates without adding a dime to the deficit.

Senate candidate George Allen had a statement of his own on the matter:

When nearly half of college graduates are unemployed or underemployed, we need to be creating jobs for young people, not increasing their debt. Washington needs to extend the student loan rates and fund the extension by consolidating or eliminating duplicative, wasteful government programs and policies. There’s no reason Washington can’t work together for a bipartisan solution and find savings to invest in education.

Any time the political class unites around a concept we have to wonder why.

The first and most obvious reason is simple: they all want to appeal to younger voters. Plus, no one wants to look like they are somehow calling for a rise in the already high cost of a college education. That’s political folly.

But a harder look at the policy of subsidizing these specific loan rates shows the whole program is a waste of time, effort and money. Writing in National Review, Douglas Holtz-Eakin notes that the benefits are much thinner than the political rhetoric lets on:

…there are 39 million Americans with student loans owing over a trillion dollars of debt, and interest rates doubling from 3.4 percent to 6.8 percent would be a huge hit at a time when households are already struggling.

Serious, except that the president’s plan would apply only to those 23 million loans being borrowed directly from the federal government. Except that not all of those would benefit; it would apply only to the 9.5 million loans being borrowed through the so-called subsidized Stafford loans. Except the lower rate would apply only to new borrowers who apply this year. Except that no payments are made until after graduation, so it would not help anyone for several years. Except that it would lower monthly payments by an average of only $7.

All this political CYA over $7 a month? Well, over the course of a year, that could buy a tank of gas…

Will Wilkinson writes in The Economist that if Washington was really serious about helping debt-laden students it should spend the $6 billion the extension would cost elsewhere:

If we think it more important to spend this dough on education, then we should hand out the $6 billion in the form of scholarships to deserving prospective collegians of modest means, to help them earn their degrees without having to take out any loans at all.

That makes the most sense of all. And a genuinely shrewd politician would pick this as the course to follow, rather than simply tinkering at the edges of a loan program that will save a some a little, but not for a while.