Education, From The Capitol To The Classroom

Why The Measure To Keep Student Loan Interest Rates Low May Not Help You

Brendan Smialowski / AFP/GettyImages

President Obama speaks to a crowd at the University of Iowa on April 25. He spoke about student loans at colleges in Colorado and North Carolina on his trip.

The U.S. House passed a bill at the end of last week that would keep the interest rates charged on some federal student loans from doubling… And that’s all student loans past and future, right?

No. The $6 billion bill only applies to new loans, says The Brookings Institution’s Matt Chingos. But both President Obama and his presumptive challenger Mitt Romney — who both have voiced support for the measure — seem happy leave this misconception unchallenged, Chingos writes:

Presumptive Republican presidential nominee Mitt Romney appears to be confused on this issue, or at least willing to capitalize on this confusion in order to woo young voters. 

In announcing his support for extending the interest-rate reduction, Romney said “particularly with the number of college graduates that can’t find work or that can only find work well beneath their skill level, I fully support the effort to extend the low interest rate on student loans.”

President Obama has also alluded to the short-term needs of students, asking a University of North Carolina audience yesterday “Anybody here can afford to pay an extra $1,000 right now?”

But the type of loans affected by the president’s proposal—new subsidized loans—do not accumulate interest until after students leave college. So a student struggling to afford college would not get any relief now—they would just face somewhat lower loan payments down the road…

If Obama and Romney want to buy the votes of struggling college students, they should at least propose the more efficient path of increasing the grants that students receive when they attend college, not decreasing the interest they pay after they leave.

That said, the White House says the proposal would save the average new borrower roughly $1,000 in student loan interest.

As we wrote last week, higher education experts are starting to worry the sticker shock of student loan debt could be deterring new college students from enrolling.

The average student at an Indiana college accrues more than $30,000 in debt for every degree they earn, according to one dataset. (At Purdue and IU, it’s more like $18,000.)

For the record, the bill in the U.S. House is by no means a sure thing to pass. The snag? Democrats aren’t happy, EdWeek reports, with the way Congressional Republicans proposed paying for it: moving $6 billion out of a fund set up under the Obama administration’s healthcare law.


  • va_mom

    As we struggle with the financing of college tuition. (We saved, but the market crash of 2008 was a big hit and although the balance recovered to its’ previous level we’ve lost all the interest that would have been earned on the difference in the meantime). My son tell me he will NOT encourage his children to attend college it is too expensive. College students of today will spend any financial incentive to attend for high wages on interest. Our son is the third generation in our families to be going to college. It is evil that our culture is conspiring to keep us ignorant and in debt. Is there any difference this that the miners and company workers living in company housing and working to keep a roof over their heads 100 years ago or serfs working for landowners 800 years ago. Our founding fathers would turn in their graves to see this…

  • Ratpack238

    At last, a real discussion about the college loan debacle. It’s disgusting that both parties even engage in this Stafford loan interest rate discussion–as if this is somehow a solution to the ridiculous costs of college. There is a mighty confusion about exactly where students get money to attend college. Stafford loans, the ones being discussed here, total only about $25,000 for four years. Room and board alone for four years totals between $32,000 and $44,000. Tuition for four years totals between $32,000 for four years at a state school and $200,000/4 years at a private college. So the true costs of attending a college–if you live on campus are actually between $60,000 and $250,000. WHAT are these politicians doing fussing over a 3% increas on a subsidized Stafford loan (that the government pays interest on while the student is in school). Unsubsidized Stafford loans are ALREADY at 6.8% and PLUS loans(that parents are have to take out to pay the remaining college costs for their kids–or cosign a private laon)) are at a whopping 7.9%. In the end, Stafford loans only cover a fraction of the total cost of school. People figure kids get a lot of financial aid, but that’s not true either. The FAFSA estimated family contribution for a family of 5 making around $70,000 are around $12,000 per year! So, EVEN if the college meets ALL the rest of your need, college will still costs that kid close to $50,000. So, I say stop the ridiculous discussion about a 3% difference in interest rate on a loan that barely covers a kid’s room and board. If these politicians are not willing to make college affordable, at least we should not allow them to make college loans a talking point for their campaigns.

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