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July 19 2013

As the World Turns—Student Loan Interest Edition

Vicki E. Alger

Yesterday a group of Senators and the Obama Administration reached a compromise on student loan interest rates with the Bipartisan Student Loan Certainty Act. According to the official public fact sheet the bill would:

  • Lower the interest rate on all 11 million student borrowers (including those without demonstrated financial need).
  • Set interest rates on all new loans to the 10-year U.S. Treasury borrowing rates and include add-ons to offset the associated costs of  defaults, collections, deferments, forgiveness, and delinquencies.
  • Depending on the type of loans students take out, current interest rates would range from 3.68 percent up to 6.41 percent.

Not everyone is happy. The Institute for College Access and Success called the compromise “more a missed opportunity than a cause for celebration.” Specifically:

It’s notable that the agreement directs the Government Accountability Office to complete a study of the student loan program’s costs to inform future reform. Neither this deal nor any of the other long-term proposals under discussion is based on the government’s actual costs of borrowing and running the loan program.

The Institute also notes that by 2017 rates will again reach 6.8 percent—the rate they were set to reach absent Congressional action.

Some say this bill is good news because it takes longer-term action, not one-year, stop-gap measures like other bills.

In reality, government fiddling with student loan interest rates does nothing to contain college costs, much less lower them. This means students may get a break on their loan interest, but because there’s no requirement that colleges keep their costs down, students will have to borrow more just to pay for their degrees.

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.
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