6:52 PM EDT, May 3, 2013
If it is spring, it is the time of flowers, showers and congressional bloodletting over federal student loan interest rates, set to rise in July. Again.
Last year, the federal act expired that had kept federally subsidized Stafford student loan rates out of the realm of political football for five years. After much anguished public hand-wringing, and aided by the fact that it was an election year, Congress approved a one-year extension to keep the Stafford student loan rate (for college undergraduates) at 3.4 percent.
Without this action, the interest rate would have doubled, to 6.8 percent, costing students millions of dollars.
U.S. Rep. Joe Courtney, D-2nd District, led the fight last year to keep interest rates the same. The Vernon Democrat has a bill in the House of Representatives that would lock in the current lower rate until 2015.
More important, Mr. Courtney's bill would give Congress time to work on the larger and more pressing issue of the skyrocketing rate of student indebtedness, which is above $1 trillion. Mr. Courtney's bill makes sense, and we hope it passes.
Another sensible action, Mr. Courtney says, would be to include the issue of federal student loan interest rates in the Higher Education Reauthorization Act, which controls policy on Pell Grants and other topics affecting universities and colleges. That law is reauthorized every five years. This would keep interest rates from becoming a yearly squabble.
Both the Obama administration and congressional Republicans want to allow the markets themselves to set the rates — a slippery slope indeed. For example, the White House wants to tie the interest rate to the cost of government borrowing, and allow Stafford student loan interest rates to rise or fall at the start of every academic year. But the president's approach doesn't set a cap that limits the potential rise, as is typical of variable-rate home mortgages.
The Republican proposals would be worse; Wisconsin Republican Paul Ryan's budget in the House of Representatives would let Stafford student loan rates double and would cut education funding.
Student loan defaults are reportedly surging in 2013. The first three months of this year were the worst on record for defaults.
The rates should be as low as possible to ease the burden on students and give them the ability to invest in the economy by buying homes, cars and other items instead of being shackled to their student loans. Otherwise, the whole country will suffer.
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