On Monday, the interest rate on federally-backed “Stafford” student loans doubled from a capped 3.4% to 6.8%. Keeping the interest rate artificially low was a key issue in President Obama’s reelection campaign.
Through high-profile campaign events and his bully pulpit, Obama forced Republicans in Congress to agree to a one-year extension of the lower rates. While lawmakers negotiated a deal to avert the jump in rates over the past weeks, however, Obama was much less vocal about the issue. Even as the rates doubled on Monday, there is no statement on the development at the White House website.
Last year, when Congress was considering the extension of the low rates, Obama held numerous events and discussed the issue throughout the media. He even used an appearance on the Jimmy O’Fallon show to stress the importance of the issue. Of course, this was in the run-up to his reelection, when Obama was hoping to repeat the strong support he received from college-age kids in 2008. With reelection behind now, the issue has apparently lost some of its moral urgency.
The entire debate over the interest rate on student loans masks a much larger issue. The rapid increase in the cost of college has forced millions of students to take-on a lot of debt. In the last decade, the average debt load of those 25 has increased 91%, to just over $20,000. This debt level, combined with the tepid economy and weak job market, puts many of these students at risk of default.
Keeping the rate artificially low simply encouraged students to take on more debt than they otherwise would have.
Obama did put forth a proposal a couple months ago, to tie the interest rate to US Treasuries and use the proceeds for deficit reduction. His proposal was very similar to one backed by the House Republicans. Senate Democrats, however, balked at Obama’s and the House GOP’s plan to use any of the proceeds for deficit reduction.
Oh, and in case you’re wondering, today’s big announcement from the White House is a new initiative to curtail elephant and rhino poaching. College students can feel good about that, at least.