Students have been granted a temporary respite from loan interest rate hikes thanks to a bill signed into law by President Barack Obama on Friday. Unfortunately, the legislation links student loan rates to the financial markets, and if/when the economy improves and borrowing costs for the U.S. rise, that cost will get picked up by students. The initial reprieve, though, will still be wonderful — 11 million borrowers will be saving an average of around $1,500 in interest due to the bipartisan agreement.
Boehner laughably called the bill “part of the Republican jobs plan,” which is blatant opportunism and inaccurate at best. After all, unlike the jobs plan, this bill actually exists (note: the jobs plan does exist, but only as a set of concepts, no real plan. You can find it here).
“Feels good signing bills. I haven’t done this in a while,” Obama said, alluding to the difficulty he’s faced getting Congress, particularly the Republican-controlled House, to approve his legislative priorities, such as gun control and budget deals.
“Hint, hint,” he added to laughter.
But even the feel-good moment at the White House came with reminders of the bitter partisanship that still makes future deals incredibly difficult for Obama. House Speaker John Boehner, R-Ohio, called the law part of the “Republican jobs plan,” while House Democratic leader Nancy Pelosi of California said it “stands in stark contrast to the House Republicans’ plan to saddle families with billions more in student debt.”
Because congressional inaction and an inability to reach an agreement on student loans, rates doubled from 3.4 percent to 6.8 percent on July 1. That’s on the federally subsidized Stafford loan plan. With the new legislation, that rate will be dropped to 3.9 percent (for graduate students, 5.4 percent, and parents/cosigners, 6.4 percent). As previously mentioned, those rates are tied to the financial markets — and the undergraduate rate for Stafford loans could rise each year, with a cap of 8.25 percent. Caps for graduate students and parents/cosigners are at 9.5 percent and 10.5 percent respectively.
Not all news is bad, though — the CBO (Congressional Budget Office) estimates the bill will save $715 million over the next 10 years. The potential interest does raise some interesting questions, though. Such as why our system refuses to forgive student debt, or why we think it has to be a directly profitable endeavor in the first place ($51 billion profitable right now). After all, student loans and grants indirectly create revenue for the United States government by increasing the amount of money, and hence taxes, someone makes/pays during their lifetime. College subsidies represent a societal investment in human capital.
Although it makes the most sense to create a free public university system, for now we should concentrate on having little to no profit. Instead of tying student loan rates to the financial markets, we should tie it to the default rate — interest should only be high enough to help the US government break even on the student loan program. Anything more than that is simply stupid.
Here is a video of Elizabeth Warren speaking about student loans:
Reposted from Occupy Democrats with permission.
- Obama To Sign Bill Changing Student Loans (huffingtonpost.com)
- CONgress Acts in a Bipartisan Way!..Or Did They? (redhawk500.wordpress.com)
- Obama Signs Law to Lower Student Loan Interest Rates (hispanicbusiness.com)