Political battle looms over doubling of student loan interest rate to 6.8%

by Grace

President Obama begins an all-out push on Friday to get Congress to extend the low interest rate on federal student loans, White House officials said, an effort that is likely to become a heated battle along party lines. If Congress fails to act, the interest rate on the loans, which are taken out by nearly eight million students each year, will double on July 1, to 6.8 percent….

With student debt at a record high of $1 trillion, the effects of this change would be widespread.  The debate becomes about who should pay, the borrowers or the taxpayers?

The Congressional Budget Office has estimated that a one-year freeze on the interest rate for subsidized Stafford loans would cost $6 billion.

The history

The low interest rate stemmed from the 2007 College Cost Reduction and Access Act, which reduced interest rates on subsidized Stafford loans over the following four academic years — from 6.8 percent to the current 3.4 percent — with the proviso that the rates would revert to 6.8 percent this July…

A political trap for Republicans and a win-win situation for President Obama

The pre-planned doubling forces GOP politicians to either approve a Democratic measure that extends the low interest rates, or else face protest from millions of students and their middle-class parents.

Many GOP legislators dislike the subsidized interest rate because it inflates education costs while delivering a disguised subsidy to the Democrats’ political allies in the education industry.

The trap “kinda makes sense,” said Mark Kantrowitz, publisher of Finaid.org, a financial aid website.

“It’s a ‘Heads I win, tails you lose,’ scenario, where if President Obama succeeds in getting it extended a for a year he gets a victory for a key segment of the voters [and] if it gets blocked, he can blame his opponents for blocking it.”

“Either way he wins,“ Kantrowitz said.

Mr. Courtney said he was hopeful that some Republican support would be forthcoming as the political stakes became more apparent.

If higher loan subsidies are approved, the poorest students could come out losing.

Outside Congress, even some of the strongest student-aid advocates debate the question. While nearly everyone is in favor of the broad goal of college affordability, some experts point out that even 6.8 percent is lower than the rate on most private student loans. And they question whether it is worth risking cutbacks in the Pell program for low-income students, one possible consequence of using more federal money to keep interest rates low on the Stafford loans, which are in wide use by middle-income students.

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7 Responses to “Political battle looms over doubling of student loan interest rate to 6.8%”

  1. … Romney yesterday supported the president’s push to extend the lower interest rate for student loans, issuing a statement saying that: “Given the bleak job prospects that young Americans coming out of college face today, I encourage Congress to temporarily extend the low rate.”

    http://abcnews.go.com/blogs/politics/2012/04/republicans-note-then-senator-obama-didnt-show-up-for-vote-on-student-loan-bill-in-2007/

  2. Obama does a slow jam on this with Jimmy Fallon:

  3. I did not expect the video to post. Hope it doesn’t crash the blog.

  4. Okay, that was mildly amusing, but I’m sure I’m not his target audience. :)

    And no problems with the video. Funny how it posted so easily for you, but sometimes I’ve had trouble embedding a video in my posts.

  5. This was a college crowd, I believe, which explains the wild enthusiasm.

    I think back in the benighted 90s, I had one student loan at 8%. (There might have been another one at 7%.) Of course, my total loans were around $6k, not the equivalent of a home mortgage, which makes a difference.

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