Our View: Keep student loans affordable

July 1, 2013 

Student loans

Terms of Uncle Sam's help just one issue in high costs

Combined private and public national student loan debt is about $1 trillion -- yes, that's trillion with a "t." That's also more than the nation's credit card debt and more than the national mortgage debt.

On Monday, new students applying for subsidized federal Stafford college loans woke up to face doubled interest rates, from 3.4 percent to 6.8 percent. Those are loans for low-income students -- about 7 million of them -- unlikely to be able to attend college without them. The increase will do what any loan interest rate increase does -- make the loans more expensive by an average of $2,600, according to the Congressional Research Service.

That's a step in the wrong direction, given that $1 trillion debt and college costs that rose 165 percent from 1993 to 2011 -- three times the overall inflation rate and more than half again as much as health care costs.

Both President Obama and both parties in Congress have said they wanted to keep the automatic increase from happening, but as has become the norm in Washington, there's little agreement on how to go about that.

Various solutions are the table, some with variable interest rates, some linking the student loan rate to the yield on 10-year treasury bills, some with caps on interest rates and some with none, one knocking the student loan rate to .75 percent, the same rate banks pay for overnight loans.

As a Washington Post analysis pointed out, the subsidized Stafford loans are a small element in the wider picture of college costs. Some critics say federal help has driven up the costs of college. At the same time, others point out that in many states public money for public universities has declined, forcing schools to raise tuition and fees, making federal help more important for the poorest students.

National policy has been to encourage higher education. That policy should continue.

Here's what we'd like to see:

• Keep a fixed rate of interest. Whether Congress decides on a set rate or one linked to T-bill yields, let students keep that rate locked in for four years.

• Keep repayment terms generous and rates low. We don't have a magic number. "Pay As You Earn" repayment plans are one method, whereby borrowers pay a percentage of their disposable income, for up to 20 years (10 years, if they're in public service jobs). In effect, these plans cap interest rates.

• Generous doesn't mean free or easily forgiven. These loans are from American taxpayers. They should be repaid. At the same time, with grant money slashed by billions, loans need more than ever to be affordable, not ball-and-chain drags that last long after graduation.

Lawmakers and the president should be able to work this one out -- even if they settle for a temporary solution to keep the rates from doubling while they work on broader measures to contain college costs.

Either way, the goal should be the same. Give students who qualify a fair shot at a either a college or postsecondary vocational education. That remains an investment we can't afford not to make.

BOTTOM LINE: Keep fixed, affordable rates for federal student loans.

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