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.
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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.