The Senate voted yesterday to reduce student loan rates. From 6.8% to 3.86%.
Really. Haven’t we heard this one before?
Wasn’t it just a few weeks ago that the very same Senate allowed the rates to double to 6.8% (from 3.4%) in the first place? (That’s rhetorical, by the way — just like this new law).
I don’t know about you, but I’m getting a little tired of the ‘moving the deck chairs on the Titanic’ approach to addressing our mounting student debt crisis. While we’re busy re-wrapping the same proposals, student debt reached $1 Trillion dollars (on July 17). The average personal debt at graduation rose by another $1,000 per student (to $26,600) in 2011. And fewer colleges than ever reported their debt numbers this year.
So, you’ll have to forgive me for meeting yesterday’s ‘great news’ with a big yawn. It’s a circular argument and a distraction – one that is not only misleading, but costing average American families thousands. Here’s why.
First, this is a short-term win, popular among those up for re-election in the coming cycle. The ‘new’ rates expire in 2015 and then will rise with interest rates (maxing out at 8.5% for undergrads, 9.5% of graduate students and a whopping 10.5% for parents).
Second, it completely fails to truly isolate (and therefore solve) the problem. Loan rate reductions treat the symptom (after-the-fact), not the cause. For example, the average debt loads vary widely from campus to campus, ranging from $3,000 at some schools to $55,250 at others. The share of students graduating with loans ranged from 12 percent at some schools to 100 percent at others. Wouldn’t it be nice to have a real debate about why some schools consistently send students off with little or no debt while others regularly cripple their graduates with five and six figure debt upon graduation?