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You’ve Been Co-signing Student Loans, and A New Bill is Due

June 13, 2012

In a continuation of the trend of strapping government-funded endeavors to the backs of taxpayers: tax dollars will persist as the patchwork solution to the financial woes of debt-laden undergrads.

In order to sustain the 3.4 percent federal student loan interest rate established in 2007 (avoiding a hike to 6.8 percent), taxpayers will fork over $6 billion dollars, effective July 1, 2012. Although $6 billion might sound like a total that would radically alter the situation, this temporary-in-nature effort will only save loan-seeking students, on average, $7 per month. Yet another government intervention that promises lost of costs for taxpayers and minimal (if any) benefit for a specific group. That is, if the continued march of rising tuition prices does not swallow the small relief whole.

Ironically, it is the massive subsidizing of higher education by government that keeps forcing more students to grasp for student loans - and now the whole unsustainable mess threatens to hammer taxpayers (almost like TARP for academia).

The Heritage Foundation offers some suggestions to the crisis from a fiscally-conservative perspective: increased utilization of private scholarships, online education programs, private lenders, and consideration of the risk-factor/graduation potential of college students receiving federal loans (currently no academic ability or outlook is taken into account). All that, plus limiting the government’s inflationary involvement in student loans.

College aid is minimally effective when coupled with tuition increases. The arena of higher education is one that the free market is fully capable of reforming without resorting to the pockets of taxpayers. 

From June 2010-2011, $104 billion in federal student loans were backed by taxpayers. Adding to the madness, the current proposed $6 billion taxpayer financed relief to an already outrageous amount of funding would only affect a small fraction of students. Students who have previously received federal loans will not experience this rate decrease, and will be limited to borrowers who have taken out Stafford and a select few other loans.

Bearing in mind the narrow benefits of prolonging this rate reduction and broad taxpayer cost, one would hope Congress starts to see the light on student loan reform.


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