A few weeks after allowing a deadline to pass that would have substantially increased interest rates – from 3.4 percent to 6.8 percent – on July 1 for student loans, a bipartisan bill was introduced that supporters say will reduce the cost of borrowing for millions of students.
The legislation will link student loan interest rates to the financial markets. That means lower rates for students right now, but higher ones down the road. The measure passed the house 392-31 and will head for President Barack Obama for his signature.
Undergraduates this fall will be able to borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. These rates would be locked in for the current year’s loan, but future loans could become more expensive if the economy picks up and it becomes more expensive for the government to borrow money.
“Going forward, the whims of Washington politicians won’t dictate student loan interest rates, meaning more certainty and more opportunities for students to take advantage of lower rates,” House Speaker John Boehner said.
“Changing the status quo is never easy, and returning student loan interest rates to the market is a longstanding goal Republicans have been working toward for years,” said Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce. “I applaud my colleagues on the other side of the aisle for finally recognizing this long-term, market-based proposal for what it is: a win for students and taxpayers.”
But John Garamendi, who represents Davis and much of Yolo County in Congress, was only a reluctant supporter.
“This compromise is the best of a bad situation. In the short term, given the makeup of this Congress, this was the best possible outcome for students and parents looking to pay for an education,” explained Representative Garamendi. “College will be more affordable with this bill than without it, and that’s the bottom line.”
Representative Garamendi “has been deeply frustrated by the inability of Congress to at a minimum preserve the 3.4 percent subsidized Stafford student loan rate which expired on July 1st. This compromise lowers the subsidized rate down to 3.86 percent for undergraduates and locks that rate for current borrowers. Likewise, future borrowers will have the peace of mind of knowing exactly what they’re signing up for, as the rates for the life of each loan will be fixed at the loan’s outset.”
He added, “America’s students deserve a Congress fighting for them. Affordable education should be a bipartisan priority. I don’t understand how anyone can think student loan rates are too generous, and I will continue to fight for the best possible situation for students in my district. Too often this Congress blindly cuts funding for research, student aid, and other college priorities, and it’s undermining our economy’s long term growth. Let’s get our priorities straight. I join my colleague House Education Committee Ranking Member George Miller in urging Congress to use the Higher Education Act reauthorization to bring down the cost of college.”
“In May, with almost no Democratic support, the House passed H.R. 1911, a bill that makes college more expensive for students and families. H.R. 1911 would have increased students’ total debt burden by billions of dollars, and a Congressional Research Service (CRS) analysis shows that the proposal is even worse for students than the 6.8 percent rate that took effect on July 1st for subsidized Stafford loans,” Garmanendi’s office said in a statement. “What’s more, H.R. 1911 would have allowed rates to fluctuate through the life of a loan based on market conditions, meaning students would have had no way to plan for the future.”
The student loan compromise, passed 81-18 in the Senate and 392-31 in the House, improves the current student loan situation by allowing rates on every single new college loan to come down this year for nearly 11 million borrowers. It would provide students with $25 billion in debt relief over the next six years compared to current interest rates.
The bill would have the advantage of allowing today’s students and families to lock in historically low interest rates for the life of the loan. Representative Garamendi’s office said this would end up “saving the average undergraduate with a loan nearly $1,500 in interest over the life of that loan.”
As a UC Regent and CSU Trustee, Representative Garamendi voted against every undergraduate tuition increase, because pricing students out of an education is bad public policy.
In June, Representative Garamendi, who graduated from UC Berkeley, said, “It is shameful that my colleagues across the aisle in the House refuse to let us vote on simple legislation that preserves the subsidized Stafford Student Loan rate for two years. It’s also shameful that Republicans in the Senate filibustered this extension, despite it having majority support in the Senate.”
He continued, “The federal government will pocket $34 billion from student loans this year. For every dollar we loan to lower-income students, we get a $1.36 back. What more do my Republican colleagues want? Aren’t we taking enough money out of the pockets of people who just want a chance at a better life for themselves or their children? Let there be no mistake: the doubling of the Stafford Student Loan interest rate is just the latest in a series of preventable manufactured crises caused by dysfunctional leadership in the House and an obstinate minority in the Senate. I hope the American people are paying attention.”
This fight has occurred as there is increased scrutiny on the student loan system that many believe have saddled young people with debts that they will never pay back and will prevent them from financial security in the future.
As one editorial called it, “This is a national crisis, and President Barack Obama and Congress ought to acknowledge the implications. If low- and middle-income kids can’t afford college — or if they have to mortgage their future to do so — the already yawning gap between rich and poor will only widen. Businesses won’t have the workers they need to compete. The words ‘American dream’ will become a punchline.”
This comes at a time when, according to a recent study from the Center on Budget and Policy Priorities, in the past five years public colleges raised tuition an average of $1,850, or 27 percent. In California, the hikes was 72 percent.
Furthermore, the deal does nothing to address what is now a $1.2 trillion student loan debt crisis.
As an opinion piece in the Milwaukee Journal Sentinel indicated, “Student loan borrowers have done the right thing. They’ve worked hard and taken on the responsibility of paying for the education or job training they need to get ahead.”
“They are not asking for a bailout. But they deserve a system that treats them fairly and doesn’t turn their hard work and education into a multi-decade debt sentence instead of the path to the middle class,” the paper writes. “Right now, American families are increasingly being squeezed by skyrocketing tuition and a system in which big banks and the federal government make billions in profits from the interest on their student loans.”
—David M. Greenwald reporting
Welcome to the next big economic bubble. The government meddling in the lending business to keep rates artificially low. People working in the industry benefiting from the artificially cheap credit enriching themselves to ever-higher levels. The product being acquired with the debt inflating much higher than the general rate of inflation. The borrower increasingly unable to realize a return on the investment that the debt funded. The borrower increasingly having to default on the debt.
Sound familiar?
“Welcome to the next big economic bubble. The government meddling in the lending business to keep rates artificially low. “
you’re a little late here.
[i]you’re a little late here.[/i]
What point are you trying to make?
The federal government has been subsidizing student loans since before i was in school
[i]The federal government has been subsidizing student loans since before i was in school[/i]
It takes a while for all that hot air of destructive government meddling to fill the balloon to the popping stage. Look how long after CRA and the repeal of Glass Steagall it took for the housing bubble to pop.
It sounds to me like you are making a case that there is no bubble because the government has subsidized student loans for a period of time without there being a bubble. Is that your point?
i don’t know if there is or is not a bubble, my guess is the only bubble is that people have exploding debt and the situation is getting worse, but my point had to do with the fact that this is not exactly a new step for the government.
Okay – great. Let’s keep doing the same stupid things because we have done them before… even though we have clear lessons that it will end badly.
We have met the enemy and it is us.
if that’s your concern, i suggest you work on the front end of the problem, not the back end.
Oh am I. Trust me. I have been all over the crappy, over-priced state of our education system for years. I am heavily involved in several organizations and ventures looking to completely transform education by exploiting technology and advances in technology. Think of a time in the future after the bubble pops where we will have many fewer employees of the education system, working for market wages and market benefits, providing a higher quality education experience to their customers – the students – and for a much lower price-point.
DP
“The federal government has been subsidizing student loans since before i was in school”
Hello, the Federal government has never subsidized student loans like the level they are now. It’s a whole new ball game.
[quote]President Obama will sign a bill today that ends a 45-year-old program under which banks and other private-sector lenders such as Sallie Mae receive a federal subsidy for making government-guaranteed college loans.
Instead, the U.S. Department of Education – which already makes roughly a third of these loans through its direct-lending program – will make 100 percent of them starting July 1, 2010.
The change will have a big impact on some lenders and colleges but relatively little on borrowers. They will continue to get the same loans – including Stafford loans for students and Plus loans for parents and graduate students – on largely the same terms.
Students who previously had to choose a private-sector lender for their guaranteed loans will now have only one choice: the government.
[/quote]
my experience is that it’s not as big a change as you think. basically my students loans i did through the university and all ended up under the usde. i never had to choose a private-sector lendor and no one i know has either. so i question whether whatever you cut and pasted from is actually accurate.
Here you go, SF Chronicle. Google it, there are many other articles. For someone who seems to up on politics I can’t believe you didn’t hear about this in 2010. It was huge news and all part of the Obamacare package.
[url]http://www.sfgate.com/business/networth/article/Feds-take-over-student-loan-program-from-banks-3193888.php[/url]
i work at the state, not the federal government
It was all over the news, it didn’t matter where you worked. It’s just too hard for you to give in isn’t it?
i completely missed it when it happened.
GI – It was all over the news except for those leftist propaganda organizations masquerading as “news” organizations. It is really not surprising that DP didn’t know given his probably news reading and viewing habits.
After all, Nancy Pelosi had to vote on the Obamacare bill before she could see what was in it. Details come second to ideology with these people. Only when their ideological demands are at risk do they start getting bookish.
@Frankly: You’re painting with a broad brush. I was fully aware of the change.
By the way, the changeover didn’t prohibit private lenders from continuing to issue non-government-guaranteed student loans–what are called “private student loans.”
That was one of the big issues of the US Bank protest. US Bank was courting students and convincing them to take out private student loans, when many of those students were not fully realizing that they could get a better deal with a federal student loan.
While I agree with the logic of the changeover, one of the downsides is that the federal government is now able to use student loans as a cash cow to finance the deficit. That’s not good.
The federal government offered the NDSL program as early as the late 1960s and I took out loans under that program as a student in the early 1970s, 40 years ago. The rates were set to be as low as possible to support the policy objective of encouraging college level education to boost the competitive capability of the U.S. When I was in school at Chico State and later at UC Davis as a graduate student, I never failed to surprise my fellow foreign students who were aghast that I had to borrow money to attend university. All of them expressed the point of view that students invest their time and their home governments reap the rewards from a lifetime of contribution by the student after they leave the university and pursue their careers. So, that is why “subsidizing” education is good policy and why the word “subsidizing” is an incorrect framing of student loan programs. The proper word is “investing” in human resources and is the same concept for K-12 education. We don’t require K-12 students to borrow and pay for their education and we should stop requiring it for the vast majority of students at the post-high school level as well.
Financially, this program has no negative effect. There is no bubble. The 3.5% interest rate is a higher rate than the Federal Reserve charges our holy and revered private banks to turn around and lend us at 3, 4 or 5%. Why is it so bad for students to have a minimal interest rate if they should have to borrow at all? Unless they graduate and become criminal bankers, they will overwhelmingly contribute many times the value of the cost of the loans they take. At even 1 or 2% such loans would be a great investment in our collective future.
davehart wrote:
> I took out loans under that program as a student
> in the early 1970s, 40 years ago. When I was in
> school at Chico State and later at UC Davis as a
> graduate student, I never failed to surprise my
> fellow foreign students who were aghast that I had
> to borrow money to attend university.
You didn’t “have” to borrow money to attend university, you just didn’t feel like working. I got an undergrad degree in the 80’s and didn’t need any loans to pay for tuition “and” books that were under $1K a year I paid to live in the dorms my first year then never paid more than $125/month in rent (and learned that you can save on food by telling the bartender you are a “designated driver” so he gives you a free 7up and you can eat free happy hour food)
> There is no bubble.
A friend’s Dad who went to Cal Undergrad and Cal Boalt Hal for Law school graduating in 1969 was just going through some old boxes and found that he paid LESS than $1,000 for undergrad AND law school tuition/fees (LESS than $1K for SEVEN years of school tuition/fees). The enrolment “fees” (Cal didn’t call it “tuition” back then) were $75 a semester when he started.
Today (assuming tuition stays flat for the next seven years) it would cost over $220K in just (in state) tuition to get a law degree from Cal over 250x (Two Hundred and Fifty Times) more than it did in the 60’s and you say there is NO BUBBLE? Boalt Hall law grads make about 10x more than they did in the 60’s but have to pay 250x more for the same degree.
P.S. I didn’t find it with Google, but I’m betting the UC Chancellor (and many others in higher education) are on the short list of people making 100x more than they did in the 60’s…
@SouthofDavis: Right. The UC’s (and CSU’s and CCC’s) were supposed to be tuition free, according to the Master Plan. There were only some small fees charged for lab work, etc. However, Gov. Ronald Reagan started raising the fee levels (with the cooperation of the CA legislature) in retaliation for the student activism of the Free Speech Movement.