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.

  • Nathan Miller

    The GOP failed in controlling the message on this issue. Obama had all the leverage and once the GOP realized this, they are now supporting the extension.

    It is telling that the only thing the RNC could come up with was to whine about Obama campagning on the public’s dime, which is a non-issue to begin with.

    The more this happens, the more I am convinced Romney doesn’t stand a chance in November.

  • MD Russ

    If Congress and the Administration are serious about dealing with the problem of student loan debt, they should banish for-profit diploma mills like Strayer, Phoenix, Kaplan, and Walden from the Federal student loan program. Numerous studies by the Department of Education have demonstrated that these businesses provide high-cost, low quality courses that do little or nothing to prepare their customers for a college-level career. Worse, they have low or non-existent admission standards that result in graduation rates that are half that of traditional colleges and universities. That results in drop-outs saddled with huge debt and absolutely nothing to show for it. The savings to the taxpayers from lower debt default could allow the Federal government to provide nearly interest-free loans to the remaining students.

  • Mormor

    Can you imagine the scream coming from GOP if someone suggested that the GOVERNMENT was about to give out 6 billion dollars in schoolarships? I mean the GOVERNMENT?
    That’s almost communism, for pete’s sake!

  • Nathan Miller

    MD…you are exactly right.

  • This issue was created in 2008 when the interest rate was cut. Temporarily. Set by law to revert back in 2012. Wonder why they chose 2012. Hmm. An election year, when the presumably still Democrat controlled congress could stop it and be the hero. Now the Republican controlled house wants to stop it and Nancy is screaming and Obama is threatening a veto.

    Pretty much a win/win for the demagogues.

  • Anonymous

    Who cares about the interest when they can’t pay the principal? What are they gonna do, throw our kids in jail? This is a non-issue that both parties are screwing their already lousy reputations with. Can the polls get to zero?

  • Anonymous

    Who cares about the interest when they can’t pay the principal? What are they gonna do, throw our kids in jail? This is a non-issue that both parties are screwing their already lousy reputations with. Can the polls get to zero?

  • Darrell

    Who cares about the interest when they can’t pay the principal? What are they gonna do, throw our kids in jail? This is a non-issue that both parties are screwing their already lousy reputations with. Can the polls get to zero?

  • Darrell

    Sorry bout that.

  • Here’s what bothers me most – Obama has been acting like this is going to affect the millions of folks out there like me that already have Stafford loans and are paying on them.

    It won’t.

    This is strictly for new loans. No reason to do this now.

  • Nathan Miller

    “No reason to do this now”….of course there is. It is a distraction from other issues and it is good politics for the President.

  • I should have said “no good reason” to do this now.

  • Nathan Miller

    🙂

  • Jumping Jack

    Tuition rates didn’t start skyrocketing until the Feds began offering student loans. Colleges adjusted accordingly, slowly raised their rates over time so the can build the latest and greatest “green” building. After they got their money, they didn’t care it’s between the student and the government.

    University of Phoenix is guilty of having homeless people apply (and get accepted!) for Federal student loans knowing most likely they will drop out after a semester. Is it the University of Phoenix’s fault or the Federal Student Loan program that gives money away to anyone who applies? Calling to eliminate all “for-profit” (every college is for-profit even if they hide under the non-profit guise) is just silly. For a Republican preaching personal responsibility, it seems a little hypocritical to want the Government to eliminate for-profit colleges because they lure students in. The real problem is that Government doesn’t belong in the business of student loans. No one is forcing students to go to bad colleges. College is the next bubble to burst.

    You can ignore the title but Tom Woods is dead on accurate.

  • Jumping Jack
  • Jumping Jack
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