Student-loan rates

The list of issues that Congress is not quite getting to this session is long and growing, and with lawmakers now on recess from their busy summer of cultivating gridlock, that will not change in the next several weeks. Before they left, though, legislators and President Barack Obama reached a long-awaited compromise on student-loan rates. That brings a welcome reprieve for those with new loans to cover their coursework this fall. Those loans were set to have rates double from 3.4 percent to 6.8 percent after July 1.

The compromise will remove Congress’ ability to set student-loan interest rates annually and, instead, tie new loan rates to the value of 10-year Treasury bills, plus an added percentage, which means this fall’s undergraduates will be able to borrow at 3.9 percent with the loans covered by the compromise, while graduate students will see 5.4 percent rates. Parents borrowing for their children will pay 6.4 percent interest. Under the deal reached late last month and signed Friday by Obama, the rates can climb as high as 8.25 percent, 9.5 percent and 10.5 percent, respectively. While those numbers are significantly higher than the pre-July 1 caps – of 6.8 percent for undergraduates and 7.9 percent for parents or graduate students – there is room to revisit those caps with future congressional action. For now, though, the jump from 3.4 percent to 3.9 percent is far more palatable – and attainable – than the doubling that the compromise replaces. And for the 18 million loans totaling $106 billion being issued this fall, that is a change that makes a significant difference how readily those students can pay for their education.

What the compromise does not do is address the rising cost of higher education, nor the crippling existing student-loan debt that too many graduates carry as a result. Those are bigger questions that will require far more of the bipartisan commitment to action than is on hand in Washington, D.C., these days. And given the relatively high rate caps that the measure sets – and could be seen as the U.S. economy grows more healthy – the reprieve should be viewed fundamentally as a stopgap measure to be revisited for a more pragmatic long-term solution.

Still, any solution is better than the alternative; Obama and Congress deserve congratulations for addressing this would-be crisis for 11 million students and their parents this fall. That translates to an average $1,500 savings in interest paid per undergraduate, according to the White House. That is real money to real people.

Congress will set about to rewrite the Higher Education Act this fall, and there are indications that a longer-term answer to student loan rates will enter the conversation, and that is appropriate. The newfound compromise, though, provides a floor that protects this year’s students in a much-needed way and allows negotiations on future federal loans to unfold in a nonemergency setting. Doing so typically makes for better results, and, in the meantime, would-be students have the certainty required to make informed and sound borrowing decisions.

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