View Mobile Site

College loan deal ties rates to economy

Other opinions

Most popular today

  • Bookmark and Share

Play some games on the Courier
Search for valuable coupons and print them out

Courier Friends to Follow

POSTED: July 22, 2013 3:00 p.m.

So even in the Washington of 2013, it really is still possible to reach meaningful consensus after all. A few million college and graduate students are no doubt delighted at that pleasant surprise.
Thursday afternoon a bipartisan Senate panel announced a compromise (remember that word?) on interest rates for student loans by the federal government. Similar legislation has already passed the House, and it’s possible this could all be in place before most college classes begin for the fall term.
That would be especially helpful. Under current circumstances, a lot of students have been waiting until the last minute to apply, after Stafford loan interest rates doubled on July 1 from 3.4 to 6.8 percent. That is simply unaffordable for many students in this slow-recovering economy, and unacceptable to both parties and both houses of Congress.
No, the new agreement does not freeze college loans at the attractive 3.4 percent rate; that would be unsustainable and fiscally impossible. The interest rates will almost certainly rise in the coming years -- but indexed to the economy, and with a cap on how high rates can go.
Under the proposed legislation, undergraduates would borrow this fall at 3.85 percent. The rate will fluctuate with the financial markets, but would not exceed 8.25 percent regardless of economic indices. Graduate students, who were borrowing at 6.8 percent interest, would borrow this year at a relative bargain rate of 5.4 percent. The market-indexed rate for future graduate school loans could not top 9.5 percent. Student loans taken out by parents would start at 6.4 percent, not to exceed 10.5 in the future.
The proposal does not change loans already in effect, which would continue to be repaid at the current rates. Also, loan limits would be both need- and means-indexed, based on ability to pay and the cost of the particular school.
It’s not a perfect solution; compromise seldom is. But the alternatives are unacceptable: Either just letting loans stay at double the previous rate, or setting an artificially low rate with short-term political appeal, and kicking the long-term problem down the road. The result would almost certainly be financial problems for another generation of students, and political problems for another generation of lawmakers. And while few of us shed tears over the latter, there’s no benefit for anybody in the former.

 

What others say about this article

  • Bookmark and Share

Commenting not available.
Commenting is not available.

 

Featured Video


Please wait ...