If American college students aren’t getting anything else, they’re getting a lesson in American politics. At least they are if they’re paying attention.
At issue is the clock ticking down on a cheap interest rate for subsidized student loans. At midnight on June 30 — if Congress takes no action or the president vetoes action Congress does take — the “chariot” 3.4 percent interest rate on the loans will balloon into a 6.4 percent “pumpkin.”
The not-so-secret secret? The real percentage rate here is zero — with zero being the chances that the rate will go up July 1. Politicians aren’t real smart much of the time, but few of them are stupid enough to double an interest rate in an election year.
The question isn’t will the rate rise, but how will the continuation of the lower rate be paid for?
In that area, lawmakers are moving hard to the right and the left. Democrats and President Obama want to raise taxes. Republicans want to cut spending. The GOP got the first not-purely-rhetorical salvo out Friday when the House voted 215-195 to extend the lower rate by cutting into their favorite target — funding for Obama’s signature health care reform act.
That’s expected to go nowhere in the Democratic-led Senate, where the sentiment — as it was with Democrats in the House — is to pay for the lower student loan rate by cutting into subsidies to oil and natural gas companies or by increasing Medicare and Social Security taxes paid by wealthier Americans.
Here’s what the battle boils down to, at least today. The Obama administration says that allowing the Stafford loan rate to go up to 6.4 percent would increase the average cost to the student over the lifetime of the loan to a whopping $1,000. The loans can be paid back over a 10-year period, so that amounts to an average added “burden” of $100 a year, or $8.33 a month.
But let’s look at it even further. The maximum amount of subsidized Stafford loans that can be borrowed is $23,000. If a student borrowed that amount, the difference in interest repaid over 10 years, according to Sallie Mae’s student loan calculator, would be $4,600, or $39 per month.
Also, all or part of Stafford loans can be forgiven by the federal government if the student performs military service, volunteer work, teaches or practices medicine in certain types of communities or is involved in circumstances specified by the student loan’s forgiveness plan.
What neither political party is noting, however, is that the loan program in question only covers a part of student (and parental) debt. Unsubsidized Stafford loans will be unaffected by any expected legislation from either party. Those loans remain at 6.4 percent. Parents who take out Plus loans for their children pay an even higher percentage, 7.9 percent.
The loan rate, and even how these politicians end up paying for it, isn’t the real issue here. Given the rise in energy markets, oil and natural gas companies could very well do with less subsidizing. Could wealthier Americans afford to pay more in Social Security and Medicare taxes? Probably so. What about diverting the health care funds? Obama and Democrats say Republicans want to wreck funding for preventative health care for women and children, but Democrats voted this year to take money from that same fund to keep doctors’ Medicare reimbursement from falling, and in Obama’s budget plan in February, he proposed to take $4 billion from the preventative care fund to pay for some other programs that he placed a higher priority on. It doesn’t seem to hurt women and children in those cases.
So, we’ll let the politicians shove the paper around in figuring out how to fund the inevitable. But what is sadly missing in all of this is what should be the basis of college — education.
In whatever legislation is forthcoming to keep these rates down, we would love to see a requirement that students (and maybe their parents as well) take some type of class or counseling on managing their debt before they’re allowed to borrow any money. Too many students and their families go into this smorgasbord of borrowing hungry and naive, gorging on what looks to be a cheap bill of fare and then swooning when they see the check for the whole meal.
But we’ll say again, given the inability of federal lawmakers and the president to run the country with any thought as to how the debt they’re racking up will wreck the lives of future generations, we doubt something so entrenched in common sense as teaching students how to deal with debt would ever cross their minds.