Senate Bill to Extend Low Interest Rates for Student Loans Fails

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In a vote of 52 to 45, the Senate failed to pass a motion to begin debate on a Democratic bill that would have frozen student loan interest rates before they are set to increase on July 1st. The Senate needs 60 votes to begin debate on a bill and Republicans planned to filibuster the bill over how the bill would be funded. The cost to freeze interest rates would be about $6 billion and Democrats planned to offset that with increased Social Security and Medicare payroll taxes on high earners.

Who is affected by this increase? Any students taking out subsidized Stafford loans after July 1st. The current rate, set by a law in 2007, is a mere 3.4%. Holders of existing subsidized Stafford loans are not affected.

Personally, I’m of the mindset that subsidized funding for education is important but we’re in a very troubling time. The cost of one year at my alma mater is nearly $60,000 a year – which is nearly double what I paid. Well, technically I got Stafford loans and some grants, but the top line number was “only” $30,000. There’s no doubt that college is expensive but higher education is like any profit – it’s price is in part dictated by supply and demand. As more cheap money is available to student borrowers, colleges can pay more because the student offsets higher prices with cheap funding.

This is especially true when you look at the for profit education space, where for profit universities are happy to charge less exorbitant sums knowing full well that their students aren’t going to be getting a positive ROI out of the investment. I’ve heard plenty of “non profit” (I think all universities are for profit) horror stories of people with six figure debts for low paying entry level liberal arts degrees too, so it’s not a “profit vs. not-for-profit” issue.

That said, I don’t know what the solution is but I don’t think increasing interest rates will help us as a whole.

{ 12 comments, please add your thoughts now! }

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12 Responses to “Senate Bill to Extend Low Interest Rates for Student Loans Fails”

  1. cvargo says:

    I am a firm believer that because student loans are so easy to obtain is the reason that schools keep increasing their tuition. If anything if the cost of a student loan goes I would think tuition would have to go down.

  2. Andy says:

    I have about $30k in Stafford loans at 6.55% but no one is talking about cutting the interest rate on my loans. Why is that? Maybe it’s because I’m on the hook for that money regardless.

  3. eric says:

    I honestly feel bad for current students…

  4. daenyll says:

    they never bothered to lower the rates for graduate students who needed those loans

  5. Current students are in a tough spot. Everyone is telling them to go to college and get that degree while the value of the degree is decreasing and the cost is increasing. Colleges are partly at fault and so is the government for making it so easy to obtain a loan.

    These loans are investments. Would you invest 40k a year in someone who is studying humanities at some mid level private school? HELL NO!

  6. freeby50 says:

    I don’t understand why people think college loans = higher tuition costs. Universities don’t plan their budgets based on student loan availability. Public schools are primarily funded by tax dollars and tuition is usually only 25% of their money. If govt. backed loans didn’t exist we’d just find other ways to borrow and end up paying higher interest.

    For profit schools basically live off government financial aid and in my opinion those schools provide little benefit to society and should be heavily regulated to cut down on their often predatory practices.

    “horror stories of people with six figure debts”

    Those really are just horror stories. 6 figure debts for bachelor degrees are absolutely not normal or even close to typical. You’re talking about 0.3% of the people.

    • govenar says:

      There’s probably a lot of waste that could be cut out of the school’s budget if the supply of easy money was reduced.

      • freeby50 says:

        Theres undoubtedly some amount of waste in any enterprise so yes I agree thers probably some waste to cut. But how much waste? 10% maybe 20%? Cutting some waste won’t magically make college cheap. At the same time cutting student loans puts college out of reach for millions of students. You don’t need to cut student loans to cut waste either.

  7. Educate4Less says:

    Jim, I don’t understand this sentence from your post: “As more cheap money is available to student borrowers, colleges can pay more because the student offsets higher prices with cheap funding.” If you meant, “colleges can CHARGE more,” you’re absolutely right and Freeby50 (no offense) is 180-degrees wrong.

    Subsidized student loans – and remember, it’s not “the government” that subsidizes them, it’s OTHER TAXPAYERS – absolutely contribute to runaway college inflation, as all product subsidies do. Essentially, 3.4% loans to 17 year-old kids (whose loan rate on a non-cosignor auto loan would probably be 15%) is preposterous and subsidize the colleges, not the kids.

    I just bought a tankless water heater, in part because I thought it would reduce my propane costs. I probably would NOT have purchased it had I not gotten a $1,500 tax credit for doing so – thank you fellow taxpayers! – which made the net cost comparable to a tank water heater. Taxpayers generated a sale for a private enterprise (the tankless company) that the pinheads in DC think is “worthy.” Same with college.

    The diatribes against “for-profit” colleges are borne of over-educated egghead scammers in “non-profit,” largely-socialist, academe: Overpaid professors with lifetime income guarantees and more egregiously, layer upon layer of administrative bloat is rampant at the “non-profits,” several of which pay their presidents over $1 Million a year. Cabrini College – enrollment of 1,366 – paid their prez $2M a few years back. To serve 1,366 customers! THAT’S a “non-profit?!” Come on; who’s scamming whom?

    College is the most overpriced commodity in American history and it is that way precisely BECAUSE the government is involved and distorted the supply-demand curve with subsidies, grants, mandates, etc. If parents want their kids to get a pointless degree in “photography” or “gender studies,” they should pay for it themselves, not ding my paycheck for it.

    • freeby50 says:

      For profit colleges get 90% of their money from student loan and federal government funding. They are the most guilty of basing their budgets directly on student financial aid availability. And they provide the worst quality education while doing so with the lowest graduation rates. University of Phoenix and others have been fined by the government for their illegal/fradulent student recruitment practices. And I’m not an egghead scammer nor socialist nor pinhead.

      No doubt theres private non-profit colleges that are over priced and over pay their president. Paying full tuition rates at most privates is certainly not worth it.

      Public universities get little of their funding from tuition and care the least about student loan money. Public schools are the best value.

      • Educate4Less says:

        Sorry Freeby, Didn’t mean that YOU were necessarily an egghead socialist (unless of course, you’re a professor intent on maintaining the charade that college price increases are cost-driven); I should have added the word “largely” between ‘are’ and ‘borne.’

        Ohio State’s prez earned $1.8M in 2009 (unclear whether that is in addition to the $550k in TRAVEL expenses OSU paid over two years for him) at a college that graduates only 48% of kids in 4-years. 30 public college Presidents earn over $1M.

        I agree that U-Phoenix is bad but so are lots of public colleges. Boise State (pretty blue football field!) graduates 6.5% in 4 years (not a misprint) and only 28% in SIX years. AZ State is 32% in four and Rutgers in NJ is 53%. CA State -Sacramento is 10% in 4-years and CSU-LA is 8%. There are hundreds of colleges – public, private, for-profit and non-profit – that are simply cashing government and parent checks to accomplish nothing but give professors and the brothers-in-law of the presidents in administration a place to hang their work hats.

        Huge scam about which parents/taxpayers need to exercise real caution (not subsidize further!).

  8. Charles says:

    My university unilaterally decided it was in “my” best interest to change Bachlor’s degree program from a four year curriculum into a five year during my junior year.
    They weren’t amused by my analogy of “bait and switch” predatory lenders when describing their tactics.

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