Google+
Close

The Corner

The one and only.

Student-Loan Refocusing



Text  



A year ago, the student-loan-rate hike was a flashpoint issue for winning over young voters in the 2012 campaign. Now, as then, the issue is one of exaggerated economic but understated political significance. Unfortunately, Democrats continue to spout misinformation about how to fix the problem. One such Democratic plan that sounds appealing to the liberal ear but is actually unworkable has come from Elizabeth Warren, who proposes, according to the Brookings Institution, “a one-year fix in which the rate on subsidized loans is set at the rate the Federal Reserve changes to banks (currently 0.75 percent).”

The center-left Brookings then commented on Warren’s idea:

Sen. Warren’s proposal should be quickly dismissed as a cheap political gimmick. It proposes only a one-year change to the rate on one kind of federal student loan, confuses market interest rates on long-term loans (such as the 10-year Treasury rate) with the Federal Reserve’s Discount Window (used to make short-term loans to banks), and does not reflect the administrative costs and default risk that increase the costs of the federal student loan program. 

While Warren’s plan seems far from likely to be taken up, there are still myriad misperceptions out there on the rate hike. Here are three of the most relevant truths about the situation:

  • The rate increase (from 3.4 percent to 6.8 percent) applies only to new Stafford subsidized loans (about 26 percent of all loans)
  • The average borrower would only pay an average of $2,600 over ten years (this number was even cited in Congress’s Joint Economic Committee Report on the issue)
  • Congress will probably find a solution in the next few weeks that retroactively readjusts the rates anyway

As Neal McClusky aptly noticed earlier here on the Corner, the two plans bearing the most similarity are President Obama’s and the House Republicanss, both of which want to tie interest rates on student loans to market rates (Obamass wants the rate fixed throughout the life of the loan, while the GOP seeks a variable rate). Whether these plans become the centerpiece of a deal in the Senate remains anyoness guess.

What is so frustrating about the student-loan-rate-hike conversation is that the issue of college graduates paying a few hundred dollars more in interest per year is only one tiny story in the meta-narrative of runaway college costs. The average 2013 graduate is carrying around $30,000 in debt, and costs have risen over 1,100 percent since 1978. A Federal Reserve study found that 35 percent of people under the age of 30 are more than 90 days delinquent on student loans. That’s a lot of indebted, unhappy, and scared young people.

With the problem of student debt dragging down young people economically, Republicans would be wise to use the student-loan fight as an opportunity to start a broader conversation about why higher education is too expensive and too wasteful, and how it can be reformed. What the College Republican 2012 autopsy found (and Ramesh Ponnuru agreed) was that young voters aren’t alienated from the GOP only because of social issues. They perceive a Democratic agenda that is far from ideal, but a Republican one that is non-existent, especially on economic issues. Elizabeth Warren’s student-loan plan probably won’t catch on in the Senate, but the misguided, redistributionist ethos behind it may already be appealing to a class of younger voters feeling disillusioned with their economic prospects. Republicans should work to lower the rate, but, in the meantime, they should explain to younger voters what is really happening in higher education while they’ve got their attention.

— David Wilezol is a producer for Bill Bennett’s Morning in America and the co-author, with Bill Bennett, of Is College Worth It?



Text  


Sign up for free NRO e-mails today:

Subscribe to National Review