In a move that should surprise no one, the Senate failed to keep college affordable on Wednesday. No, it didn’t fail because too few Senators couldn’t move along the Keep Student Loans Affordable Act.
The Senate failed because federal fiddling with student loan interest rates does nothing to keep college affordable. The Wall Street Journal aptly drives this reality home:
The Congressional Budget Office recently estimated taxpayer losses on student loans at $95 billion over the next decade [See here.]. Meanwhile, researchers at the Federal Reserve Bank of New York have been tracking the harm to young borrowers [Warning: the figures aren’t pretty.]. Student-loan debt used to be a rough indicator of economic progress, because it meant that the borrower was attaining higher levels of education, long associated with higher incomes and lower unemployment.
But in recent years an historic surge in student-loan debt is changing education for many borrowers from a winning investment into a staggering burden. Such debt has nearly tripled since 2004 and now hovers around $1 trillion, with defaults rising on student loans and other types of debt held by these young borrowers.
Whereas credit scores used to be similar for young people with or without student-loan debt, New York Fed economists find a divergence after 2008. "By 2012, the average score for twenty-five-year-old nonborrowers is 15 points above that for student borrowers, and the average score for thirty-year-old nonborrowers is 24 points above that for student borrowers," they note in a recent report. …
As ever, increasing government education funding to students is pocketed by universities in the form of tuition increases. The never-ending federal effort to ‘make college affordable’ simply provides the resources to sustain higher prices.
A policy disaster that results in rising costs, taxpayer losses and overstrapped borrowers is now manifest. So naturally this week Senate liberals will bring to the floor a plan to ensure that the policy continues unchanged. Rates on subsidized Stafford loans would stay frozen at the 3.4% rate that prevailed before a July 1 expiration, with new taxes to sustain them.
Government needs to get out of the way—and out of taxpayers’ wallets—to better ensure individuals and families can save what they need to pay for college. As important, government needs to stop redistributing other people’s hard-earned money to bloated, postsecondary institutions that currently have no incentive to shape up and slim down.