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California Association of Private Postsecondary Schools

Student Loan Debate Becomes Election-Year Fight

04/27/2012

The New York Times, April 26, 2012

The subject of interest rates on subsidized college loans, once reserved for the deep weeds of Congressional committees, has touched off a blazing battle between Democrats and Republicans at a volume usually reserved for debates over tax cuts or immigration.

The election-year fight for the allegiance of college students and their hard-pressed parents grows out of a combination of soaring college costs, mounting student debt and a sluggish job market for graduates. This has made a top-tier issue of preventing the interest rate, now 3.4 percent, from reverting to 6.8 percent.

Under attack from President Obama, House Republicans have hurriedly set a vote for Friday on legislation that would prevent the July 1 rate increase. Senate Democrats have their own competing proposal that they intend to consider in early May.

The Republicans moved after President Obama spent the last week attacking them for failing to introduce legislation to stop the increase — resulting from a bill pushed by Democrats years ago to lower the rate — as he went from college campuses to late night talk shows to hammer away at the issue. House Republicans are determined not to allow Mr. Obama to spend the next week, when Congress is in recess, continuing his attacks unanswered.

Encapsulated in this political brawl is the running theme of the partisan fights from the 112th Congress: Both sides agree on a desired result, but they disagree on how to pay for it. Republicans want to offset costs by taking money from a program within the health care law — itself a contentious issue in the Republican-controlled House — while  Democrats, as they have with other costly bills this year, want the money to come from taxes on high earners or oil companies.

And as in the fight over a once bipartisan bill to protect women against domestic assault, each side is presenting itself as the voice of sympathy.

“For the president to make a campaign issue out of this and then to travel to three battleground states and go to three large college campuses, on taxpayers’ money, to try to make this a political issue is pathetic,” said  Speaker John A. Boehner at a news conference Thursday as he leveled some of his harshest attacks to date on the president. “This is the biggest job in the world, and I’ve never seen a president make it smaller,” he added.

The debate comes as student-loan debt, like mortgage debt, has become a major burden on households: In 2010, student-loan debt surpassed credit-card debt for the first time.

For the past three decades, increases in college tuition have outpaced the overall rate of inflation, and increases in room and board have risen even faster. That has driven a substantial increase in the volume of student-loan debt. American students took out twice the value of student loans in 2011, about $112 billion, as they did a decade before, after adjusting for inflation. Overall, Americans now owe about $1 trillion in student loans.

“This is different than a number of years ago,” said Senator Ron Wyden, an Oregon Democrat, who said constituents frequently want to discuss these costs. “Ten years ago, 15 years ago, college funding was a significant investment, like buying a car. Today it is the second-largest that you’re making.”

In 2006, as part of their campaign agenda, Democrats promised to cut student loan interest rates in half. After taking a majority in the House, Democrats looked at their fiscal limitations and moved to temporarily reduce interest rates for the low- or middle-income undergraduates who receive subsidized Stafford loans to 3.4 percent from 6.8 percent, with the rate reverting to 6.8 percent in July 2012. (Graduate students with Stafford loans pay the higher rate, as do students with unsubsidized Stafford loans. Most undergraduates take out both unsubsidized and subsidized loans to cover the cost of their education.)

Some Republicans have expressed concerns about allowing the rates to remain low, citing fear of default in a poor economy. The default rate for all federal student loans was 8.8 percent in the 2009  fiscal year, the latest year for which data was available; it was 4.6 percent in 2005, mirroring the rest of the economy.

With the lackluster economy and high rates of unemployment for young workers, Mr. Obama had asked Congress to deal with the impending increase, but until this week no big moves were made. The House budget, known as the Ryan plan, made no effort to block the increase and the Senate has no budget. Democrats did try to amend the Ryan budget in committee to prevent the doubling of rates; Republicans voted it down.

Without legislative action, the rate will snap back to 6.8 percent — acting as a $1,000 tax on new college graduates entering a challenging labor market, President Obama has argued. Indeed, the average student with Stafford loans graduates with about $13,000 in debt. At a fixed 3.4 percent interest rate — one of the lowest in recent decades — a student would spend about $15,350 paying the loan off over 10 years. At a fixed 6.8 interest rate, that student would pay about $17,950 — about $2,600 more.

Representative Fred Upton, Republican of Michigan, said the issue would not go quietly away. “Most families really do rely on student loans,” he said. “I went to a state school; it was $330 a semester.”

Then, he said, “You could have a summer job and you could do that. Today you can’t.”