Washington, D.C. — Below is a statement from a broad coalition representing students and young adults, including Young Invincibles, Public Interest Research Group, Education Trust, and Student Debt Crisis
“This week, Congress is expected to respond to students’ and families’ concerns about rising student debt by voting in a bipartisan manner to keep federally subsidized student loan interest rates from doubling on July 1, from 3.4% to 6.8% – but not without negative long term consequences.”
“Thanks, but no thanks.”
The proposals being discussed, which both Congress and the President appear open to supporting, will actually cost students more than if rates were simply allowed to double. Given the current long-term proposals, Congressional inaction would actually be preferable.
In this proposed ‘solution’ to our student debt crisis, legislators of both parties would lock in profits for the government and hitch student rates to the market. While tying loan rates to the market is not inherently a bad idea, the proposals on the table start interest rates much higher than necessary and trend up over time. Proposed caps on interest would be far too high to offer meaningful protections to students.
One of these proposals, the Student Loan Certainty Act, introduced by Senators Manchin, Burr, Coburn, Alexander, and King, ignores rising interest rates and raises the cost of college. Their proposal ties interest rates to the market without a real cap to protect students, and if passed, students would pay even more to go to school in just a few years.
But to add insult to injury, their proposal goes beyond the existing billions in government profits, and proposes to increase student loan rates even more to pay down the deficit. It is unacceptable to use student loans as a vehicle for deficit reduction, especially when students are already forking over billions.
This comes at a time when the federal government is projected to reap $51 billion this year from student loans. That’s more profit than each of America’s three most profitable companies — Exxon Mobil, Apple, and Chevron — saw last year.
There is an important underlying challenge to switching to a market rate right now. CBO projects, based on a fixed 6.8% interest rate, that federal student loans will generate $180 billion in net revenue for the federal government over the next 10 years. For Congress to switch to a market rate and stay budget neutral (i.e. to still raise $180 billion), it has to set a starting interest rate that is considerably higher than the 10 year Treasury bill.
We should not lock in a higher interest rate to preserve the $180 billion that the government makes off the back of students in the next decade, and we certainly shouldn’t increase that profit while doing so. Students can barely afford the debt they have now. Raising their rates to preserve revenue for the government and pay down the deficit is not in their best interests.