It’s not student loan interest – it’s the principal and principle of it all

Does everyone understand how low student loan rates are? Borrowing money for college during the last 10 years has never been less expensive. So why are Democrats freaking out about the loan interest rates, while turning a blind eye to the huge tuition increases at public (and private) colleges and universities?

2009 – UCONN trustees approve tuition hike of 6%. 2010 – UCONN tuition to increase 5.66%. 2011 – UCONN announces 6% tuition increase. 21013 – Price of attending UCONN up 5.1%. Do you see a pattern? There have been smaller 2 to 2.5 percent increases during the last few years as well, and this does not include the increasing costs of room and board. These increases are happening everywhere, all across the country. In the last 30 years, college tuition rates have increased at an annual rate of 7.45 percent.

Of course, Democrats are now pushing the Student Load Affordability Act, which has everything to do with student loan interest rates and absolutely nothing to do with the real problem, tuition costs. In short, the legislation is an extension of the current low rates for two more years, and a few other things that have nothing to do with interest rates or college tuition of course.

To amend the Higher Education Act of 1965 to extend the reduced interest rate for undergraduate Federal Direct Stafford Loans…

Sen. Elizabeth Warren (D-Mass.) thinks it’s immoral for the banks to charge such a huge rate to students on 10 year loans at super-low interest rates when banks are paying less than 1 percent on money they borrow overnight.

Remember, politicians don’t like to deal with the hard stuff, like dealing with the unending problems with extraordinary benefits – including life-time health care and pensions – for employees of state colleges and universities. Look at the budgets of the schools, it’s not school supplies that cost money – the benefits and pensions for the union employees and retirees is the bulk of the budgets! Remember, those are mandatory and untouchable since they are contractual agreements. So they get together in press conferences and blame a target – the big banks.

I put this post together after reading Glenn Renyolds’ opinion piece in the Wall Street Journal.

Unless Congress acts, interest rates for government subsidized student loans will double to 6.8% from 3.4% on July 1. In May, House Republicans passed a bill that would index rates on new loans to the rate on 10-year Treasurys (currently about 2.6%), plus 2.5 percentage points, with an 8.5% cap. But with little Democratic support in the Senate, that bill is dead in the water.

Most Democrats want to lock the current 3.4% rate in place for two more years while Congress debates a “fairer” solution. Massachusetts Sen. Elizabeth Warren has even proposed letting students borrow directly from the government at the same ultra-low rate that banks currently get on short-term loans from the Federal Reserve—0.75%. She calls the Republican proposal “immoral.”

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Please do go read the Renyolds piece. Here’s one good section.

[H]ere’s where the real immorality kicks in. The skyrocketing cost of a college education is a classic unintended consequence of government intervention. Colleges have responded to the availability of easy federal money by doing what subsidized industries generally do: Raising prices to capture the subsidy. Sold as a tool to help students cope with rising college costs, student loans have instead been a major contributor to the problem.

In truth, America’s student loan problem won’t be solved by low interest rates—for many students, the debt would be crippling even if the interest rate were zero.

7 replies
  1. kateinmaine
    kateinmaine says:

    it’s my understanding that the federal gov’t makes something like 36 cents on every dollar loaned to students.? who is immoral?? higher education now operates like a business, with the added protections of state/federal aid and not for profit status.? who is immoral?? didn’t the federal gov’t recently steal–er, usurp–er, co-opt–er, liberate the student loan program from the private sector to make this very thing impossible?? or was it to complete the circle?? the tuition argument is far more valid.? especially when you examine the union costs, double dipping, waste/excess, etc.? oh, what difference does it make?? they’re only hastily printed, diluted-value dollars.? how hard will it be to repay the debt once you get that great job, facilitated by your useful, in-demand college degree?? no worries!

  2. sammy22
    sammy22 says:

    Federal students loans have been around since 1958. I had one way back when. The fact that tuition has increased at astonishing rates can’t be simply a case of? ” Raising prices to capture the subsidy”, as stated above. Neither Republicans nor Democrats nor anybody else is willing to take on the “business” of higher education.

    • Dimsdale
      Dimsdale says:

      Then how do you explain the simple fact that tuition rates have been rising at 2.5 times the inflation rate just since 1986 (http://inflationdata.com/Inflation/Inflation_Articles/Education_Inflation.asp)?
      ?
      It isn’t like we are teaching 2.5 times better, or 2.5 times more (and I say that as part of academia).? Maybe it is things like the new president of UCONN, a public college remember, getting salary and comps of $738,000?? Or the constant increases in the numbers of administrators vs. faculty (a common problem even in K-12)?? Also remember, in most research facilities, like UCONN, the faculty gets most of their salary from federal grants, NOT the university.? And don’t forget that substantial overhead the university gets from those grants, the staff and equipment also paid by them.? And the prodigious money that comes in from the extraneous sports programs.? Look at Harvard’s multi BILLION dollar endowment, and tell me that tuitions have to increase at their current rate.
      ?
      Yeah, it couldn’t possibly be “chasing the subsidy”, could it?

      • sammy22
        sammy22 says:

        I agree with what you say (until the last sentence). What does your list have to do with students loans? Students borrow money because they have to pay exorbitant tuition fees.

      • Dimsdale
        Dimsdale says:

        Schools increase tuition at 2.5x inflation. ?School expenses do not explain this. ?Artifially cheap interest rates (subsidization) for student loan rates, combined with apparent greed on the part of a predominantly liberal administration, does.
        ?
        I welcome your input.

  3. ricbee
    ricbee says:

    The Dirtyratcrats fear people will wise up & stop taking out student loans & their favored universities will be forced to economize &? get rid of their most loyal supporters like that fork-tongued banshee Lizzie Warren.

  4. Dimsdale
    Dimsdale says:

    Clearly, Fauxcohontas isn’t smart enough to realize that she has taken any racial complaint out of Affirmative Action and quotas.?? AA , like any form of not well thought out government subsidization, is a total crock, elevating the unqualified of any race to Peter Principle levels of employment.

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