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  • College (Loan) Football: The Looming Interest Rate Hike

    Over the weekend, President Obama urged Congress to prevent a pending interest rate hike on student loans. While he argued that failure to keep interest rates low would be a “tremendous blow” to students, he failed to note that federal overreach into the industry is largely to blame in the first place.

    The Obama Administration’s overreach into the student loan industry has been wide-sweeping. In what The Wall Street Journal deemed “that other government takeover,” a provision buried deep in Obamacare effectively nationalized the student loan industry by ending government subsidies to private lenders and putting the federal government in charge of originating and servicing federally backed student loans.

    The Obamacare provision came in addition to the Administration’s decision in 2011—made through executive order—to forgive student loan debt after 20 years. And it comes in addition to the Administration’s gainful employment regulations restricting access to student loans for students attending for-profit institutions.

    But the current debate’s origins are in separate legislation passed in 2007 whereby the federal government set interest rates on student loans artificially low, cutting the rates in half temporarily for four years. Now that the interest rates are set to increase, President Obama is pressing Congress to keep rates low.

    John Kline, chairman of the House Education and the Workforce Committee, stated last week:

    After gaining control of Congress in 2007, then-Speaker Nancy Pelosi (D-CA) and Rep. George Miller (D-CA) championed H.R. 2669, legislation that only temporarily phased down interest rates for subsidized Stafford Loans made to undergraduate students over four academic years, at which point the rate would revert back to 6.8 percent.… [E]xtending the 3.4% interest rate on subsidized Stafford Loans made to undergraduate students for one year would cost roughly $6 billion.

    Part of the problem is a system where virtually anyone is eligible for a student loan, regardless of credit history or repayment potential. But unlike other loans, taxpayers are on the hook when students default or incur other losses.

    Debate over interest rate hikes are part of a larger problem with federal involvement and ever-increasing subsidies for higher education. The cost of attending college has increased 439 percent since 1982 (after adjusting for inflation). Continuing to increase federal subsidies hasn’t helped reduce college costs and has likely exacerbated the problem over the decades.

    There are better solutions to drive down the cost of college. Shifting from debt-based to savings-based college financing, limiting access to federal student loans to four years of undergraduate work, and—with the proliferation of online learning—allowing the free market to work to reduce college costs are all policies that would provide needed relief to both students and taxpayers.

    Posted in Education, Featured [slideshow_deploy]

    5 Responses to College (Loan) Football: The Looming Interest Rate Hike

    1. cmack says:

      Will this interest rate hike apply to student loans already in existence or just to new loans going forward?

    2. Bobbie says:

      This President is a two faced lying conniver. About 4 faces less than Pelosi, but connivers are connivers. Protecting the high pay of people who's dollar amount doesn't add up! Commander and chief of ultimatums deviously put on the innocent/uninvolved. America needs a person of decency in office and government abuse OUT!

    3. Daver says:

      It's truly shameful that we allow politicians to manage things they have no business being involved in!!

      College cost is at the end of the day an investment. It needs to be looked at by the student and their families as an investment. Investments have risks. Does anyone in their right mind believe that a degree in gay, lesbian and bisexual studies is an investment that is likely to pay out more than the cost of attaining it? Regardless how I might feel about the program–what job or life skills does it impart that any potential employer might be willing to pay "extra" for?

      Colleges and banks, beyond what a family can subsidize on it's own, should be the only ones evaluating the worthiness of whether jr's desire to be a marine biologist living in Nebraska makes any sense (financial worthiness to risk) or not? The government has no ability to do so–and their involvement only skews the market forces that would normally prevent the accumulation of $1T in debt that we have now attained.

    4. Daver says:

      The other problem, (just like in our health services debate a couple of years ago) is again only about payment as a secondary result of the situation. College, like healthcare, costs a lot more than it needs to! If gas had increased 439 percent since 1982 the price would be $32 a gallon. But who is it our politicians are interested in criticizing over increased costs–oil companies. Professor Elizabeth Warren at Harvard makes $359,000 a year for teaching less than 15 hours a week. Even tenured professors at less known universities like the University of Texas at Arlington, earn over $200,000 for teaching less than 10 hours a week. Do you think maybe these schools could become a little more efficient with their cost structures if they had to?

      But our president is out campaining on the fact that interest rates are artificially low and might revert to something closer to the actual cost of money if he isn't re-elected. Maybe his lack of insight into the problem stems from the fact that Obama used to be a teacher? Should he recuse himself from the debate maybe?

    5. Mike, Wichita Falls says:

      Texas enacted cuts in higher education funding in the last session. Does our local university even consider cutting administration and/or teacher salaries/benefits? Nope. They raise student tuition and fees. Never any spending cuts, just more revenue. Sounds like our federal government.

      If enrollment doesn't drop in response to such increased costs, the university will only be emboldened to continue this way. They also know students will just keep applying for those low-interest loans.

      It's easier to pass the buck onto the backs of taxpayers spread out over the entire country rather than a handful of staff who live in the same town and see you every day.

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