Still a good deal for students

 

Student loan rates doubled on Monday. This is not a disaster, despite what you’ve heard.

President Obama made the expiration of a 3.4 percent student loan rate a big campaign issue last year, warning of dire financial consequences for struggling students. Congress extended the rate for a year. Now that extension has expired, and each side is bashing the other for allowing that 3.4 percent rate to adjust upward (though Republicans are yelling the loudest). “The divisions among the president and his own party,” House Speaker John Boehner proclaimed on Monday, “are directly responsible for the current impasse that will now result in higher borrowing costs for students already coping with skyrocketing tuition bills.”

But there’s a lot that the politicians usually leave out. First, the rate in question is not on all federal student loans but on one class of them: subsidized Stafford loans. Second, the government isn’t hiking the rate on any existing loans — only on new ones. Any loans issued before Monday keep the rate they originally came with. Third, even at 6.8 percent, students are getting a great deal. They are risky borrowers, and no private lender would front them money at anything like the rates the government is offering — not to mention the terms.

Oh, yes, the terms. The interest rate is only one thing that determines how much student borrowers end up paying after graduation. Much more important are the repayment options the government extends to needy debtors. Under an income-based repayment program Obama championed, student borrowers are never required to pay more than 10 percent of their disposable income in debt service. And the government will forgive any remaining loan balance after 20 years, as long as those borrowers qualify. It makes much more sense to target financial relief toward graduates who end up needing it rather than offering lower rates up front to a lot of students, many of whom might go on to make loads of money after college.

Instead of unwarranted political hysterics, Washington should try taking the politics out of setting student loan rates. A funny thing about the fight is that both Obama and House Republicans want to do that, and they even agree — very broadly — on the way to do it: linking student loan rates to the rate at which the government borrows, instead of having Congress fix the rate based on whatever lawmakers feel like. Students’ rates would float with everyone else’s, reflecting economic reality. The New America Foundation’s Jason Delisle points out that this is also fairer across generations of students, as the amount of help each would get from the government wouldn’t fluctuate with interest rates, as it does now.

The problem has been that Obama and Republicans haven’t agreed on some of the specifics, and Democrats such as Sen. Elizabeth Warren, D-Mass., insist on continuing to set interest rates by congressional decree. Despite Warren, there should be room for a bipartisan deal. And if an agreement doesn’t materialize, once you consider the broader context, 6.8 percent just isn’t so bad.

© 2013, The Washington Post

Read more From Our Inbox stories from the Miami Herald

  • A battle ahead on ‘personhood’

    Some of the most hard-fought Senate races this fall are likely to feature big fights over “personhood.”

  • The Cuba embargo is such a bad idea

    On a drive across Cuba a few weeks ago, my family and I decided to make a quick detour to the Bay of Pigs. It was hot, and the beach at Playa Giron — where 53 years ago a tragicomic CIA-sponsored invasion force stormed ashore — seemed like a good place for lunch. Plus, who could pass up the opportunity to swim in the Bay of Pigs? I would swim in the Gulf of Tonkin for the same reason.

  • A deadly decade for environmentalists

    According to a report released this week by the London-based NGO Global Witness, at least 908 environmental activists have been killed over the last decade. That number is comparable to the 913 journalists killed in the course of their work in the same period and is likely on the low side — reporting is inconsistent in many countries and full data for 2013 hasn’t yet been collected. 2012 was deadliest year ever for environmentalists with 147 killed.

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category