If Congress fails to reach a compromise by July 1, more than seven million college students will see their federally subsidized student loan interest rates double. With less than a week to go, Congress must act now and pass a bill that doesn’t tie interest rates to the market and keeps them at 3.4 percent. The House and Senate should support any one of the short-term proposals currently available that will extend low interest rates for subsidized student loans, allowing themselves more time to pass long-term education reform.
Advocates of variable rates that fluctuate depending on market performance are shortsighted. Sure, the Federal Reserve’s 0.75 percent discount rate to banks is attractive now, but as the economy recovers, that figure will rise and leave students vulnerable to rate spikes. A dynamic interest rate would have parents and students guessing whether they can afford to take out loans and undermine Congress’ overall goal of increasing students’ access to higher education.
Setting loans to market rates would allow the government to profit at the expense of students as well. Minnesota Rep. John Kline’s Smarter Solutions for Students Act proposal illustrates how market-based interest rates are a smarter solution — for the government, that is, not students. According to the Congressional Budget Office’s estimates, the United States would save $3.7 billion by following Kline’s variable-rate bill. However, the $3.7 billion saved would go toward reducing the national deficit, effectively asking students to pay for a deficit they didn’t create and removing funds that would have otherwise been invested in students’ educations.
Current levels of student debt are already at a record high of more than $1.1 trillion. According to Van Jones, president and founder of policy, economics and media think tank Rebuild the Dream, student debt is so high that it’s become a substantial hindrance to economic recovery.
“[Student debt] is preventing young people from buying homes and starting businesses,” Jones wrote in a CNN column.
A recent study from the Federal Reserve Bank of New York confirms that. The Fed found in April that 30-year-olds with student loans were less likely to have debts from big-ticket purchases such as home mortgages than 30-year-olds without student loans. Similar trends appear among 25-year-olds and auto loans as well.
Increasing interest rates on student loans would further depress the economy. What’s needed is a long-term solution, but market-based interest rates is not the way. Until Congress finds a better solution, a host of short-term proposals are available to give Congress more time without endangering students’ futures.
Sen. Elizabeth Warren’s bill sets rates at 0.75 percent for one year so as to let students borrow at the same rate banks do. Sen. Kirsten Gillibrand proposes allowing existing loans to be refinanced at today’s low rates. The Student Loan Fairness Act from Rep. Karen Bass permanently caps all federal loans at 3.4 percent and allows eligible borrowers to convert private loans into federal direct loans.
Even Sen. Jack Reed and Sen. Tom Harkin’s modest proposal, which simply extends the current 3.4 percent rate for two years by closing a few tax loopholes, is viable. But Congress must stop squabbling and act now before the July 1 deadline closes in.
Jessie Wong is a junior majoring in public relations. She is also the editorial director of the Summer Trojan.