As you have probably heard, student loan interest rates have doubled from 3.4% to 6.8% after Congress failed to come to an agreement over how it should be handled.
Not surprisingly, most Democrats favor keeping the government involved and capping rates at an artificial level. By artificially keeping rates low, students have taken on more and more debt, creating what some are calling the “education bubble.” I disagree a bit with my colleague Mike on the classification of this as a bubble. Because the debt is not dischargeable in bankruptcy, I agree more with Charles Reid in that it is more of an anchor – the debt is keeping younger Americans from getting married, purchasing homes and starting families.
Whatever one wants to call it, it’s a serious problem.
Ironically, it’s the GOP controlled House and President Obama that have similar ideas on how student loan interest rates should be dealt with:
Top Senate Democrats want a cap in place to protect students if interest rates spike. That is at odds with the slightly different proposals from President Barack Obama and various congressional Republicans, which are tied to 10-year Treasury bond rates and would include charges for administrative costs but would not include caps.
Republicans, who prefer a more market-based approach, often point out that the White House’s proposal falls more in line with their own.
“When President Obama proposed letting the markets set interest rates instead, the Republican-led House passed a bill reflecting his plan,” Jenkins said. “Republicans in the Senate came to the table with similar ideas. Unfortunately, Senate Democrats attacked the president’s plan, refused to work with us, and allowed this rate hike to take effect, leaving for the July 4th holiday without passing a solution.”
Some Senate Democrats however, are content with doing nothing to solve a long term issue, relying instead on a short term political “fix” that will do nothing to solve the problem in the long run:
But the proposal contains key features of good policy on student loans—most notably market rates that are fixed for the life of the loan—and combines elements of prior proposals from House Republicans, Senate Democrats, and President Obama—a rarity in Washington these days. Disagreement remains over the issue of whether rates should be capped, but a cap is unlikely to matter much given current projections of future interest rates and the consolidation cap that allows students to refinance their loans at lower rates should market rates rise dramatically.
Unfortunately, the possibility of something constructive getting done in Washington was quickly squashed by the Democratic leadership in the Senate. Education committee chairman Sen. Tom Harkin is sticking to his proposal of kicking the can down the road, a repeat of last year’s outcome despite the emergence of serious long-term proposals. Sen. Elizabeth Warren argues that the can-kicking strategy “buys us the time” to come up with a long-term solution.
But the last thing Congress needs is yet another clock to run down, and next year’s campaign season is going to be no more conducive to sensible policymaking than last year’s. Furthermore, if the Democrats in Congress want to win the argument that their Republican colleagues are do-nothing obstructionists, they have to stop dismissing good ideas that have support in their own party, across the aisle, and in the White House.