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Opinion: A compromise on student loans

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opinion Detroit Lakes, 56501

Detroit Lakes Minnesota 511 Washington Avenue 56501

It’s encouraging to see that Congress is still capable of compromise, as demonstrated in the student loan bill recently passed by the Senate.

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The House already passed its version, which was compatible, and President Obama has signed off on the compromise.

In the short term, the bill means borrowing for tuition, housing and books will be less expensive for college kids this fall.

But the costs will climb as the economy improves.

The bipartisan solution links interest rates on federal student loans to the financial markets.

Interest rates are still low by historical standards, so for now that’s good news for college students (and their parents).

But rates are already on their way up, thanks to investors nervous about the Fed ending its massive bond-buying stimulus program.

For now, anyway, the compromise is a fix that will give virtually all students a lower rate.

Congress needed to act because rates on newly subsidized Stafford loans doubled to 6.8 percent on July 1, after Congress could not agree on a way to keep them at 3.4 percent.

Without action, rates would have stayed at 6.8 percent – a jump too steep and too fast for most lawmakers to stomach.

As passed by a large majority in the Senate, the compromise allows undergraduates to borrow at a 3.9 percent interest rate this fall.

Graduate students will have access to loans at 5.4 percent, and parents can borrow at 6.4 percent.

The rates are locked in for that year’s loan, but each year’s loan will probably be more expensive than the last, depending on what the bond markets do.

Rates will almost certainly rise as the economy picks up and it becomes more expensive for the government to borrow money.

As part of the compromise, Democrats won a protection for students by capping rates at a maximum 8.25 percent for undergraduates.

Graduate students would not pay rates higher than 9.5 percent, and parents’ rates would top out at 10.5 percent.

Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.

Even so, those obviously aren’t great rates for students — but it means that in a time of tough federal budget cuts forced by the so-called sequester, student loans won’t be a drain on the treasury.

Not everybody is thrilled about the compromise.

Sen. Al Franken held his nose and voted for it, but had been pushing a plan to extend low interest rates to give Congress more time to negotiate. The Senate couldn’t vote on it because of a Republican filibuster threat.

The Congressional Budget Office estimated the bill will reduce the deficit by $715 million over the next decade. During that same time, federal loans will be a $1.4 trillion program.

We hope the high interest rates on student loans don’t materialize. They’ll just worsen the problem of college affordability.

In fact, Congress should now turn its attention to the out-of-control cost of higher education and find a solution for students graduating into a weak job market with sky-high debt loads.

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