Home / Blog / Article


June 24 2013

Student Loan Do-Over

Vicki E. Alger

July must be right around the corner if the POTUS and Congress are carrying on about a $1,000 tax on college students. At issue are several current attempts to stop the current 3.4 percent student loan interest rate from returning to 6.8 percent on July 1 if Congress doesn’t act. (No you’re not having déjà vu. We went through this last year, too.)

First a quick review of the plans currently on the table:

April 9, 2013: The Comprehensive Student Loan Protection Act introduced by Sens. Tom Coburn (R-OK), Richard Burr (R-NC), and Lamar Alexander (R-TN) attempts to set a “market rate” for student loan interest by tying it to the 10-year T-bill rate plus 3 percent.

April 10, 2013: President Obama’s plan outlined in his FY 2014 budget is pretty similar, except its “market rate” adds just 0.93 percent to the 10-year T-bill rate (for a loan rate of 3.43 percent for subsidized loans/2.93 percent for unsubsidized loans).

April 17, 2013: The Student Loan Relief Act introduced by Rep. Joe Courtney (D-CT2) does not even pretend to be a market-based solution. It simply freezes loans at the current rate of 3.4 percent for two more years.

May 8 & May 14, 2013: Under the Student Loan Affordability Act  introduced by Sen. Jack Reed (D-RI) student loan rates would be frozen at 3.4 percent for two years “while Congress works on a long-term solution," namely, the Responsible Student Loan Solutions Act introduced by Sens. Reed and Dick Durbin (D-IL). The “market mechanism” under this plan is the 91-day Treasury rate (currently .04 percent) plus a percentage determined by the Secretary of Education to cover student loan overhead costs (heaven only knows what rate that would be).

May 9, 2013: Under House Republicans’ Smarter Solutions for Students plan introduced by Rep. John Kline (R-MN2) student loan rates would be tied to the “market rate” defined as 10-year Treasury notes plus 2.5 percent (which currently works out to 4.8 percent).

But the plan that garners the dubious distinction of being ridiculed by both the New America Foundation and the Brookings Institution as “gimmick” is The Bank on Students Loan Fairness Act offered by fair weather voucher proponent, “you didn’t build that” architect, and savior/occupier of Wall Street Sen. Elizabeth Warren.

The twists and turns of Warren’s logic may make your heads spin even more than when the distinguished Senator from Massachusetts made her case for a $22 per hour minimum wage. Sen. Warren’s bill would:

…prevent the doubling of the interest rate for Federal subsidized student loans for the 2013-2014 academic year by providing funds for such loans through the Federal Reserve System, to ensure that such loans are available at interest rates that are equivalent to the interest rates at which the Federal Government provides loans to banks through the discount window operated by the Federal Reserve System…

National Review’s Ian Tuttle slogs through the torturous logic behind that plan and dismisses it as “shameless populist demagoguery.”

In reality, none of the student loans schemes offered thus far are market based (a start would be funding students directly rather than funneling funding through bloated postsecondary institutions). But this is what happens when we let the federal government (another bloated entity) encroach beyond constitutional bounds under the guise of “helping” us.

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
Follow us