AD Main Menu

Our View: Student-loan compromise better, but not best

On the heels of the Senate's failure to roll back student loan interest rates, a bipartisan group of senators has worked out a tentative deal that would tie loan interest rates to the yield on 10-year Treasury bills.

The results? All students will be paying more for federal loans, which provide by far the greatest amount in student loans in the United States -- about $860 billion of the slightly more than $1 trillion in U.S. student debt.

On Wednesday, the Senate failed to OK a one-year extension of the 3.4 percent rate on subsidized Stafford loans, which help about 7 million lower-income students go to school. That left in place a jump to 6.8 percent for loans taken out this year, which would mean a debt burden increase of $1,000 to $2,600 over the life of the loans, depending on how much a student borrowed.

Both Republicans and Democrats said they didn't want that to happen, and now the compromise led by Sen. Joe Manchin (D-W.Va.) and Sen. Lamar Alexander (R-Tenn.) would cost students less than 6.8 percent but more than 3.4 percent -- for a few years.

According to Congressional Budget Office projections and the basic math of the compromise bill, students would pay 4.5 percent on the subsidized Stafford loans this year. But if the CBO's forecast of T-bill yields is right, the rate would be back up to 6.8 percent by 2017 and keep rising until it hit a cap of 8.25 percent.

Unsubsidized Stafford loans and loans to parents would cost even more.

This compromise may be the best Congress can do; Jerome Bernstein of The Atlantic reported Thursday that Senate staffers say the House, which had a tougher bill in the works, will likely agree.

But is this the best policy?

College loan debt today is more than credit card debt and growing. Average loan debt for college graduates is about $27,000. Why? From 1993 to 2011, college costs have risen far more rapidly than even health care costs, and more than three times the rate of the overall U.S. cost of living -- 165 percent compared with 56 percent.

Even the most responsible parents and students have suffered sticker shock -- and shots to everything from retirement funds to home equity.

Forty years ago, even 20 years ago, student debt was far more manageable; more graduates and fewer parents could shoulder the load. Congress wasn't interested in making money off the loans. The aim was to invest in education for the fundamental reason that an educated populace is more productive and essential to a republic. That should still be the nation's policy.

Student loans are not the only issue, or even the main issue. The nation needs to contain the spiraling costs of higher education itself. As Bernstein pointed out, students and parents need to be more savvy about loans and other options.

But low-interest loans, a national ethic of repayment and rededication to the American ideal of improving our lot through education should lead to a better compromise.

A better compromise would lower the debt load -- and thus raise prospects for all of us.

BOTTOM LINE: Congressional student loan compromise is better than decision by default, but not the best policy.