Democrats in the Way, Again

Interest rates on student loans are set to double on Monday after lawmakers failed to find a bipartisan solution to keep the federally subsidized borrowing costs down.

[T]he current, 3.4% interest rate on Stafford loans—the most popular funding for college students—set to expire on July 1….

The higher rates would add about $3,000 to the total interest on a $23,000 student loan repaid over 10 years.

In fact, the rates will double to nearly 7%.  However, those $3k are mostly partisan hype: they work out to an extra $12.50 per month on the loan payment for graduates with jobs.  Oh, wait….

On the other hand,

In May, House Republicans passed a bill that would index rates on new loans to the rate on 10-year Treasurys (currently about 2.6%), plus 2.5 per centage points, with an 8.5% cap.  But with little Democratic support in the Senate, that bill is dead in the water.

Thus, the Senate Progressives are perfectly willing to burn students and their loans because these self-important Democrats couldn’t get their way.

Then there’s this minor set of details, courtesy of Glenn Harlan Reynolds, law professor at the University of Tennessee, in that same Wall Street Journal op-ed:

According to an extensive 2012 analysis by the Associated Press of college graduates 25 and younger, 50% are either unemployed or in jobs that don’t require a college degree.  Then there are the large numbers who don’t graduate at all.  According to the National Student Clearinghouse Research Center, more than 40% of full-time students at four-year institutions fail to graduate within six years.  The National Center for Education Statistics reports that almost 75% of community-college students fail to graduate within three years.  Those students don’t have degrees, but they often still have debt.


Now here’s where the real immorality kicks in.  The skyrocketing cost of a college education is a classic unintended consequence of government intervention.  Colleges have responded to the availability of easy federal money by doing what subsidized industries generally do: Raising prices to capture the subsidy.  Sold as a tool to help students cope with rising college costs, student loans have instead been a major contributor to the problem.

In the end, the way to work the student debt problem is to reduce the need for the borrowing: get school costs down to saner levels.  Reynolds suggested a way:

Remove the incentives for universities to accept government-subsidized student-loan money regardless of a student’s prospects of graduation or gainful employment.

To which I add the following:

  • the schools shouldn’t receive the subsidized loan monies—i.e., the schools would have to be reimbursed after the fact—until the borrowing student has actually graduated and begun working
  • subsidized loan monies—taxpayer funds—should not be available at all except to students in majors that have serious prospects of bettering our nation’s strength and prosperity (stated differently, making better off the taxpayers on the hook for those monies).  STEM majors would qualify; Gender, Women’s, and Sexual Studies majors or majors in General Literary Studies need not apply.

Naturally, Progressives will have a herd of cattle over such criteria; money grows on the trees of the rich, after all.  Too bad.

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