Students around the country gathered at the U.S. Capitol complex yesterday to protest rising student loan interest rates, which are slated to double from 3.4% to 6.8% in July, unless Congress blocks the automatic increase. In addition to the rally, the students delivered 130,000 letters from concerned collegians requesting that Congress save them from this undue financial burden. One such student, Tyler Dowden of Northern Arizona University, laid out his concerns in testimony:
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable definitely limits my ability to be successful,” said Tyler Dowden, 18, a freshman at Northern Arizona University who spoke at a press conference outside the Capitol before the letters were delivered in boxes with “Congress: Don’t Double Student-Debt Rates” printed on the outside.
Dowden said he anticipates graduating with $25,000 in debt, but if the rate increases, he expects to add about $3,500 to that tally. He’s studying to be a mental health therapist.
"Limits my ability to be successful?" Let me just interject for a moment: if he has a ten-year amortization, it's going to add a little less than $30 to his monthly loan payment. Furthermore, I would point out that I owe far more than this kid does, I work in a profession that generally pays less than what he hopes to do upon graduation, I live in a very expensive city, and I'm doing fine. But more on that later.
Democrats took to the pulpit as well, decrying this national travesty while echoing President Obama's rhetoric from his Feburary speech about lower interest rates and the devastating effect they would have on our ability to compete nationally.
On Tuesday, Sen. Jack Reed (D-R.I.) and Rep. Joe Courtney (D-Conn.) joined student and consumer activists to push legislation freezing the interest rates on Stafford federal subsidized loans, warning of dire consequences if Congress failed to act.
"This is a question of competitiveness," said Reed. "Our ability to compete ... rests fundamentally on our ability to educate young Americans."
Courtney added that allowing rates to climb is a "recipe really for going backwards as a nation."
Ah, the melodrama. Now, I'm all in favor off a well-educated society; it's critical to our success as individuals and a nation as a whole that our citizenry is armed with knowledge to fulfill professional and civic duties. But to say that an increase in student loan interest rates is driving us backward as a nation? Bandaid, cancer, etc.
Furthermore, it's worth noting that Democrats set this trap for themselves back in 2007:
With many lawmakers acting on a campaign promise, the Democrat-controlled Congress in 2007 passed legislation to progressively lower the rate to 3.4 percent this school year.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, has said the looming hike is the “result of a ticking time bomb set by Democrats five years ago” and that “simply calling for more of the same is a disservice to students and taxpayers.”
Jennifer Allen, a spokeswoman for Kline, said in an email that we, “now face the exact predicament we expected: we must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill.”
Kline’s office estimates based on a Congressional Budget Office figure that the annual cost to keep the rate low is about $6 billion annually, although some Democrats have estimated it would cost less than that.
Now, in his budget for 2013, the president included a year-long extension of the lower interest rate, which he priced at $3.8 billion. And Democrats claim they could pay for the extension easily. Take Rep. Courtney's word for it: "He could whip up a list 'on the back of an envelope,' including targeting tax breaks for oil companies and hedge funds."
Again, however, the interest rate increase is but an expensive symptom of a systemic cancer in the higher education business: tuition is indisputably costly, and therefore more students have been forced to take out loans to help pay for it. Lowering the interest rate, however, isn't going to do anything to solve the problem of tuition costs, and in the long term, will only exacerbate our nation's well-documented financial woes.
Republicans have talked about ways to get to the heart of the matter -- lowering tuition itself -- but that requires a grand overhaul of the modern American university bureaucracy. The Heritage Foundation lays out the real culprit behind education costs, and points out the fallacy that the federal government has a major role to play in driving down those costs:
Traditional higher education is a classic example of an industry that has grown bloated and inefficient over many decades and is ripe for a major transformation. The business model of most colleges and universities has changed little over time. When college tuition and expenses were a smaller part of the typical household budget, the costs of tenured professors teaching few classes, large administrative bureaucracies, or elegant buildings that added little tangible value could be passed on to students. But as these costs consistently increased faster than household income, it was only a matter of time before many customers were priced out of the market. That is now beginning to happen.
The antidote to this trend is not for the federal government to tweak college assistance. It is to encourage the mounting competition to the current cozy system coming from new and far less expensive higher education business models. Competition—not further involvement from the Department of Education—will transform higher education and sharply reduce costs in the future.
In fact, an increase in federal aid would add to the climbing costs, and encourage colleges and universities to continue spending and passing the costs on to students:
More federal support? The President proposes to provide $1 billion to states that curb education costs and to expand the Perkins loan program from $1 billion to $8 billion. Unfortunately, the unintended effect of adding more federal assistance, even though it would defray the costs for some students, would be a lack of incentive for colleges to reduce costs.
Yet the current battle over student loan interest rates isn't merely indicative of a financial failure; it also reveals the pervasive entitlement attitude and short-sightedness that so many college students have adopted. As I noted above, I'm in the same boat as many of these indebted college students. I owe the government and a private lending insitution a rather hefty sum of money; I felt my school was worth the cost, however, and I'm proud of the fact that I have a stake in my own education.
It's easy to craft a budget that fulfills financial obligations like rent and groceries while still granting grace for the occasional movie or grande caramel macchiato. A slightly lower interest rate on student loans isn't going to make or break your bank account, and the idea that the federal government is here to take on the long-time household cost of college education is absurd. Besides, look at all the budget-shifting that has to happen for the government to be able to afford the extension: it's not free, and it's not saving Tyler and those other students any money. The costs are shifted to the taxpayers -- people like his parents -- who, in turn, now have even less money to put toward college tuition. It's a cycle, which the universities perpetuate.
Tweaking student loans to make college more affordable is like trying to cure pneumonia with a cough drop. The temporary relief is sweet, but the body's as weak as ever.