If you have a college student in the family — or an interest in presidential politics — by now you've probably heard that the interest rates on Stafford student loans are set to double on July 1 unless Congress takes action. President Barack Obama has been touring college campuses this week asking that rates be held to 3.4 percent.
As one might imagine, this is a message that has some traction with young voters, a crucial bloc for Democrats, and the reception at places like the University of North Carolina at Chapel Hill and the University of Colorado at Boulder, where the president has taken his message, has been warm and welcoming. So much so that former Massachusetts governor Mitt Romney took time out from campaigning in five Republican primaries to issue a statement saying he supports extending the lower interest rate on federal Stafford loans, too.
That may have come as a bit of a surprise to Republicans in Washington who have taken a more skeptical view of the student loan program. Mr. Romney had already wholeheartedly endorsed Rep. Paul Ryan's budget plan, which contains no provision for keeping the lower rate. Apparently, he didn't mean he liked the whole thing (or read the fine print), or perhaps he changed his mind.
Certainly, Mr. Romney gave no similar endorsement to the federal Pell Grant program, which targets aid to students with financial need and does not have to be paid back. The Ryan budget proposal contemplates a major cut to that student aid program.
GOP leaders say the Stafford extension must be paid for with cuts from other federal programs. Of course, that was not their position whenPresident George W. Bushsigned the College Cost Reduction and Access Act into law five years ago; that bill cut the 6.8 percent interest rate in half in the first place. Nor has the "paid for" provision been high on their list when contemplating benefits to more favored groups, like extending the Bush-era tax cuts to wealthier Americans.
Nevertheless, Republicans might be embarrassed into action in an election year and sign off on a one-year freeze. That would cost the federal government all of $6 billion (less than half the cost of additional Pentagon spending this year). But the benefits would be large — keeping undergraduate students in school and reducing the debt they'll carry after they have completed their education.
As much as the student loan debate and Mr. Romney's reversal make for good political drama, the student debt problem is a serious issue that goes far beyond short-term interest rate extensions or whether Mr. Obama will poll as well with college-age students as he has done in the past. Rising college costs have caused students and their families to rack up a huge burden of debt.
U.S. student loan debt is now estimated at more than $1 trillion, so big that economists worry about the ripple effect on the economy — whether young people will postpone buying homes or other big-ticket items because of their monthly student loan payments. The overall size of student debt (up 16 percent this past year) has been boosted, in part, by the weak job market that has sent some people back to school for career training.
But that doesn't mean fewer people should be going to college. Recent studies show the income gap between those with college degrees and those without is widening. Even with the debt involved, the choice still makes sense for most Americans.
Rather, the U.S. must focus on ways to make college more affordable in the future. Part of the solution would be to adequately invest in public schools. In Maryland, a half-decade-long freeze on in-state tuition rates helped make the state's public universities more affordable when compared to their peers in other states. The difference in cost was made up by public funds.
Government grants and loan subsidies make sense, too, as long as those benefits are means-tested. That's not an entitlement so much as a smart investment in the economy and a way to keep the U.S. competitive in the global market. While U.S. taxpayers spend a considerable sum on K-12 education, U.S. per-pupil spending on higher education is only about average among the world's biggest economies.
There are other steps to be taken to encourage more efficient and effective schools. But for now, the first ought to be to extend the Stafford interest rate cap and save students an average of $1,000 apiece over the life of their loans.