The interest rate that students will pay on Stafford loans doubled yesterday, marking a new failure for a Congress that has been unable to reach deals without approaching a crisis.
The interest on these federal college loans went from 3.4% to 6.8%an extremely high rate compared with the prevailing market rate. This happened because the Senate and the House of Representatives could not reach a joint solution before July 1 to prevent these increases that will impact 7 million student borrowers.
In this case, once again, Democrats and Republicans did not agree on how to stop the increase. A big contrast exists between very different visions of what the end goal of these loans should be.
The Republican-controlled House approved a change that at first decreases the interest rate but leaves it flexible, allowing it to rise a lot more as the economy improves, which would mean borrowers would pay more than under the current increase. Estimates show that this formula could reduce the deficit by $1 billion within a decade.
Senate Democrats, on the other hand, tried to extend the current rate for one more year, so that loan adjustments are considered next year as part of the Higher Education Act’s reauthorization. This proposal failed, since it did not reach the 60 votes necessary to overcome a filibuster.
We believe that the objective of a federal college loan is helping students so that they can develop professionally and in turn enrich the economy with what they learn. In contrast, some people see students as customers and a source of revenue to decrease the federal deficitno matter the debt load they will carry after finishing their studies.
When Congress returns from the break, we hope that lawmakers recognize the outrageousness of the 100% increase that went into effect, and reverse it retroactively. More importantly, they should accept that college loans are part of education policy and should be treated that way, instead of becoming a tactic to collect revenue.
Federal student loans should be seen as an investment in the future rather than becoming a vehicle to pay bills or fill the hole left by tax cuts.