Blog: The Educated Reporter

Student Loan Rates: Pure Politics or Real Reform?

President Obama this week addressed students and reporters on the need for his administration and Congress to come to an agreement to prevent the interest rate on federally subsidized student loans from rising next month.

While the president framed his remarks in terms of keeping college costs down, some analysts have argued that there are other aspects of paying for college the federal government could address that would have a more meaningful impact on students’ pockets.   

Amy Laitinen of the New America Foundation this week wrote that the political frenzy over keeping federal loan rates from jumping to 6.8 percent from the current 3.4 percent means legislators are capable of responding quickly to voter anxiety. But while the increased loan rate could add and estimated $760 to student repayment costs on new federal loans over a ten-year period, millions of students actually face more foreboding fiduciary challenges when they take out private loans. Laitinen explains such private education loans are nearly impossible to discharge in bankruptcy settlements talks, even while credit card debts accrued to pay for tuition are eligible for such consumer protection.

And last month, Mark Kantrowitz wrote an Op-Ed piece with Lynn O’Shaughnessy for The New York Times remarking that even if the interest rates do rise, the students will be hit with a maximum of an additional $6 to pay a month. Meanwhile, eligibility for the maximum Pell Grant award was capped for families who make $23,000 a year, a drop from last year’s ceiling of $32,000. That switch puts $5,550 in grant money at stake, which makes the impact the possible loan rate hike might have on students seem paltry, Kantrowitz and O’Shaughnessy argue.

Is the battle to keep rates down a case of political maneuvering meant to score points with voters? And whatever happened to the president’s warning to universities to keep costs low, or else? What can we make of this policy theater given the other higher-ed costs that could be addressed?