NTU urges all Senators to vote “No” on S. 1238, the “Keep Student Loans Affordable Act.” This legislation would amend the Higher Education Act of 1956 to reinstate reduced interest rates for undergraduate Federal Direct Stafford Loans for one year, while resorting to convoluted pension distribution modifications to “pay for” the policy.
Further extending the below-market interest rate of 3.4 percent established in 2007 could actually exacerbate sky-rocketing higher education costs while doing little to alleviate the enormous burden of debt carried by many young Americans. In addition, should Congress fail to reenact rates that were in effect prior to July 1, borrowers would pay only a few dollars more a month. Federal subsidies distort the loan market, inflate the price of college, and encourage young people to accumulate debt while obfuscating the risk involved in such transactions.
According to the National Center for Education Statistics, between 2000-01 and 2010-11, the average cost of a year of undergraduate tuition, room, and board at a public university rose 42 percent; and the same costs at a private college or university rose 31 percent. Around the same time, federal aid tripled from $10 billion in FY 2000 to $30 billion in FY 2008. Taxpayer-funded subsidies that keep student loan rates artificially low have both inflated the cost of college degrees and opened the floodgates to a host of students with a higher risk of default. Some of these students might have wisely avoided taking on the enormous debt associated with a high-end college degree were it not for the abundance of cheap credit at taxpayer expense.
Rather than prolonging the harmful government meddling in the student loan market, Congress should be looking at ways to get out of the higher education business. Congress has been taking small, but important steps toward real reform and privatization in a similar area, federal flood insurance, and should consider a comparable path forward for student loans. A good place to start is letting the interest rate align itself with market-based norms so that the true costs and risks involved are no longer hidden by price manipulation.
Roll call votes on S. 1238 will be included in our annual Rating of Congress and a “No” vote will be considered the pro-taxpayer position.
If you have any questions, please contact NTU Federal Affairs Manager Nan Swift at (703) 683-5700