If congressional leaders have struck a deal that keeps the interest rate on federally subsidized Stafford loans for college students from doubling, good. Congress has wasted time in protracted wrangling on this matter, mostly for political theater.
Despite the partisan bluster, the one-year extension of the 3.4 percent interest rate only continues the bipartisan change started under the George W. Bush administration in 2007 when President Bush signed the College Cost Reduction and Access Act into law. The aim, as the bill’s title acknowledges, was to help reduce college costs and make it accessible to more people.
That goal is more, not less, important in 2012. This country urgently needs a better educated workforce to compete in today’s more global economy. When costs put up roadblocks to that, we’re handcuffing ourselves and setting the stage for prolonged economic woes.
Experts say keeping the rate at 3.4 percent would save the average borrower about $1,000 over a decade. The neediest students who experts say tend to borrow the maximum $24,000 would save $5,000 or more over a 10-year period. Keeping the lower rate on those loans is expected to cost taxpayers about $6 billion.
Ironically, despite all the wrangling, this one-year halt on hiking the loan rate back to the 6.8 percent it was in 2007 won’t really address the bigger issue. Overall student loan debt hit $857 billion last year, according to data from the College Board. The cost of a college education has been rising 9 percent a year over the last decade, more than three times the overall rate of inflation.
Stafford subsidized loans represent only a small percentage – about 3 percent – of that debt load. That doesn’t make the hike in interest for the 7.4 million students facing it any less troublesome. But it underscores that Congress as well as colleges and universities must do much more.
Already, Congress has acted to hamper, not help, the situation. Lawmakers last year eliminated two federal education subsidies. Students who faced the Stafford loan interest rate hike (the loan is available to students whose family income is below $70,000) will have to start paying that interest as soon as they graduate. There had been a six-month grace period. Additionally, graduate students will no longer be eligible for the federally subsidized loans. Both changes go into effect Sunday.
The changes follow modifications Congress made in federal Pell Grants for low-income families. In prior years, students whose family income was $32,000 or less qualified for the grants; now the income cutoff is $23,000.
Yet it’s skyrocketing tuition and other college costs that impede most from higher education. The White House is rightly tackling that with its crackdown on schools that charge a lot, entice students to take out big loans and do a poor job of educating and job placement. For-profit schools have been especially troubling. They account for 12 percent of higher ed students but consume 25 percent of Pell Grants, 21 percent of all federal student loan dollars and in 2010 had a loan default rate of 25 percent.
Tying federal dollars to demonstrated results could go a long way toward reining in costs that some experts now say outpace the price-tag for health care. That’s especially true at many for-profit schools, where federal student aid constitutes a whopping 90 percent of their revenue.