Congress this week made life a little more difficult for incoming college students by allowing federal Stafford loan rates to double from 3.4 percent to 6.8 percent.
The problem was created last year, when a similar deadline loomed and Congress failed to come up with a long-term solution, choosing instead to temporarily freeze the rates. And as seems to be the case with most deadlines these days, Congress couldn’t resist the temptation to use this year’s cutoff date to play a game of chicken.
The Senate is reportedly set to vote Wednesday on a bill that would extend the current rate for another year, starting retroactively July 1. And after looking at the other proposals floating around Capitol Hill, punting the issue into next year just might be the least-odious option.
The issue seems to be a purely philosophical debate for some lawmakers, such as Rep. John Kline, R-Minn., who said in the weekly Republican radio address: “What we need is a long-term solution that gets Washington out of the business of setting rates altogether.”
Kline is part of a push to let federal Stafford loan rates vary year-to-year based on the market rates for 10-year Treasury bonds, a move described by Rep. Dave Reichert, R-Wash., as “the best solution because it removes private financial concerns from government control.”
Those who would argue that the federal government should have no control over the interest rates need to re-evaluate their national priorities. Consider the federal discount rate, a tool that allows the Federal Reserve to control the interest rates charged to banks — and deserves some credit for preventing economic meltdowns after the 9/11 attacks and the 2008 financial collapse, to name just two examples, by alleviating sudden liquidity crises.
Student loan debt has skyrocketed from just $250 billion in 2003 to more than $1 trillion today. According to Congress’ Joint Economic Committee, students face an additional $2,600 in debt if the 6.8 percent rate goes unchanged. But since Treasury bond rates are expected to rise, students could be hit even harder in time by the plans proposed by Congress and President Barack Obama — whose plan also ties the rates of Stafford loans and Treasury bonds.
Not only is that bad for students; it’s bad for the economy. The more student loan debt we pile onto our college graduates, the less money they’ll have to spend on homes, cars and other consumer goods.
Ideally, lawmakers from both parties would come to their senses and find a long-term solution that doesn’t involve annual standoffs and deadline crises. In lieu of that, we’d settle for freezing the rates again until 2014.