Editorial: Congress set to stick it to students by letting loan rates double

Published: Wednesday, Jun. 26, 2013 - 12:00 am | Page 12A

If the United States hopes to compete in a global economy, its young people will need access to higher education. Yet Congress is about to make that access significantly more expensive for millions who depend on student loans.

Unwilling to move from their partisan corners, members of Congress have only this week to strike a deal on student loans before they take their July 4th recess. If Congress doesn't take action, student loan interest rates will double starting Monday.

Here in California, more than 550,000 students receive subsidized Stafford loans. Many are feeling the pinch of dramatic tuition hikes at UC and CSU schools that threaten to push higher education out of reach for low-and-middle-income students. All risk becoming collateral damage in another game of partisan chicken that defines the current state of politics in Washington.

With the hope of securing the youth vote that helped him to victory in 2008, President Barack Obama championed a low student loan rate on the campaign trail last year. Obama's bully pulpit push helped seal a one-year pact that held federal student loan interest rates at an all-time low of 3.4 percent.

But time is running out on that deal, and House Republicans are pressing for deficit reduction, including the billions spent subsidizing student loans. They've pushed for H.R. 1911, which would allow student loan interest rates to float, tied to the 10-year Treasury note, and would set a rate cap at 8.5 percent.

Although the House bill would appear similar to a plan Obama previously proposed, the White House says the legislation would create far too much uncertainty for college students and their families. Obama's plan called for rates to be pegged to the 10-year Treasury note at the beginning of each year. The House plan, by contrast, would allow interest rates to float after loans are taken out, exposing families to the gyrations of the market.

If floating interest rates stay low, the GOP House plan would have little impact on students. But if rates spike – going above 6.8 percent – the impact could be far more costly than if Congress were to do nothing, and allow rates to double.

We suspect there is a compromise that could be struck to protect both the U.S. Treasury and the national interest of accessible education. But that would require both sides to budge, and neither seems in a budging mood at the moment.

The best solution may be another one-year "punt" – with Congress extending the current 3.4 percent interest rate. The current political impasse should not come at the cost of restricting the financial mobility of current and future generations.

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