Don’t Punish Student Borrowers

With the student debt crisis already hurting the economy and hobbling the young, the last thing the country needs is a federal policy that makes college even more costly. But that’s what the country got earlier this week when Congress allowed the interest rate on the subsidized federal loans to double from 3.4 percent to 6.8 percent.

If this increase is allowed to stand, more than seven million mainly low- and middle-income borrowers who begin college in the fall will pay an average of about $1,000 more per loan. That would mean about $4,000 more in debt for students who finish in four years, with the burden falling on people who could least afford it.

Congress could avoid this debacle by passing Democratic provisions pending in both the House and Senate that would extend the lower rate for one year, giving lawmakers a chance to restructure the complex student loan system. But, incredibly, some Republicans are supporting proposals that would cost students and their families even more than the new doubled rate — using the proceeds for deficit reduction.

Those who want to keep the rates affordable understand that college educations benefit the work force and the country as a whole. Those who would increase the burden on borrowers see a college education as an asset that benefits the individual alone. That’s a dangerous idea, at a time when this country is steadily losing ground to its increasingly better prepared competitors abroad.

Bills introduced by Democrats would stop the increase immediately and would pay for the lower rate — which costs about $4.25 billion — by closing a loophole in the law governing I.R.A.’s and 401(k)’s that are left to beneficiaries when the account holders die. Once the interest rate increase is forestalled, lawmakers could turn to the long overdue task of revamping laws on student loans and student aid that are arbitrary and far too complex.

Earlier this year, the Institute for College Access and Success, a nonpartisan policy group, issued an extensive set of recommendations for reforming the loan system to better serve both taxpayers and borrowers. The government could tie those rates to its borrowing costs, keeping the rate low while the student is in school. When the loan enters repayment, the rates could be allowed to rise by a set amount but would never exceed a cap, which would protect families from interest spikes. Congress should have been working on this problem since last summer, when it extended the expiring 3.4 percent rate for a year. Now that the day of reckoning has arrived, lawmakers should give students a reprieve and get to work on remaking the student loan system.


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