On Friday, President Barack Obama met with college students at the White House to reprise a familiar appeal on behalf of the nation's young people: urging lawmakers to prevent the cost of student college loans from doubling on July 1. Interest rates on Stafford student loans are set to rise from the current 3.4 percent to 6.8 percent at the end of this month unless Congress acts, an increase the president says would add an extra $1,000 a year to the cost of a college education for most students.
This isn't the first time Mr. Obama has appealed to Congress to hold the line on college loan costs. Last year the president went on a barnstorming tour of college campuses to draw attention to the issue after GOP House leaders offered a budget plan that made no provision for keeping the lower rate. Eventually Congress relented, but rather than make the low-cost loans permanent, lawmakers agreed only to a temporary fix that left rates where they were for 12 months, thus ensuring another political fight over the issue this year.
This time, the two sides aren't far apart in their efforts to control borrowing costs, but the fact that they can't strike a deal is further evidence of the extent to which the partisan gridlock in Washington is preventing Congress from doing much of anything, even on issues that enjoy broad support on both sides of the aisle. The effort to constrain the rise in college loan costs, after all, was an initiative sponsored by a Republican president, George W. Bush, and it was passed into law six years ago as the College Cost Reduction and Access Act by a House and Senate controlled by Democrats. This should be an easy problem to fix, even if lawmakers have to be embarrassed into doing the right thing.
The president's proposal would tie rates on student loans to the interest on the 10-year Treasury note, which is expected to be about 2.5 percent next year and thereafter rise gradually to just over 5 percent by 2018. Mr. Obama's plan would also allow students to lock in their initial borrowing rate for the life of the loan, and low-income students would get an additional 2 percentage point break compared to what others pay.
The GOP proposal would also start by tying the initial interest rate to the 10-year Treasury note. But after that, rates could rise or fall annually like an adjustable rate mortgage — making the overall cost of a college education somewhat less predictable — and there would be no provision for poor students to pay lower rates. On the other hand, the GOP plan would cap interest payments at a top rate of 8.5 percent, while the president's proposal sets no upper limit on borrowing costs.
Given that many students are leaving college with staggering student loan debts, it's imperative that the president and Congress come to some agreement that keeps college costs affordable. Either one of the proposals currently on the table would be better than allowing interest rates to double overnight, which no one wants to see, and both Republicans and Democrats have a stake in appealing to the young people who are becoming an increasingly important segment of the electorate.
Nor is there much doubt that, over the long run, policies that encourage more young people to obtain a college education are good both for the graduates and the economy. College graduates overall can expect to earn twice what those with only a high school diploma make over the course of their careers, and the nation's production of highly skilled young workers is crucial to our economic competitiveness. The cost to taxpayers of continuing to subsidize affordable college loans — estimated at about $6 billion last year — is negligible compared to the long-term benefits of keeping undergraduates in school and reducing the debt they must repay after completing their educations.
Unlike other fights in Washington, the differences between the two parties over the issue are relatively minor. Ideally, Congress would quickly work out the details of a long-term plan that ensures college remains accessible and affordable, but if that's not possible, lawmakers should at least extend the current low rates for another year as a stopgap measure while they work out a more permanent solution to the problem.Copyright © 2014, The Baltimore Sun