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College Students Tell Congress: “Don’t Use Them As A Cash Cow”

July 17, 2013

The Honorable Harry Reid
522 Hart Senate Office Building
Washington, DC 20510

The Honorable Mitch McConnell
317 Russell Senate Office Building
Washington, DC 20510

Re: College Students Tell Congress: “Don’t Use Them As A Cash Cow”

Dear Majority Leader Reid and Minority Leader McConnell:

Seventeen days ago, the low 3.4 percent interest rate for subsidized Stafford student loan borrowers expired, causing the rate to double to 6.8 percent. This means that over seven million students, largely from families with incomes of less than $50,000 a year, will pay up to $1,000 more per loan.

When the rate doubled, it created an additional $41 billion revenue stream to be paid from the pockets of student loan borrowers to the government. In total, the federal government is projected to make $184 billion in profit from borrowers over the next decade. This amount, collected in the form of fees and interest rates, is not based on the actual costs of running the federal loan program. Further complicating matters, comprehensive student loan deals under consideration in the Senate, as well as the plan that passed in the House, would lock in future generations of students as a profit center to help reduce the deficit.

Congress should invest in America’s college students.  Students should not be seen as a cash cow.

American families and students already hold over a trillion dollars in student loan debt.  While the economy demands that more and more Americans get a post-secondary degree or credential, a college education has become less and less affordable. What the country needs now is leadership to reduce the actual costs of higher education, not make borrowing more expensive.

No attempt at comprehensive student loan reform can result in actually lowering student debt burden unless it takes into account two factors.

The first is how much it actually costs to run the student loan program.  The proposals under consideration are not linked to the actual cost of running the program.

The second is the government’s cost of lending. Many students and student groups agree that a market-based rate is reasonable, but it must be tied to the government’s cost of lending and it must have a meaningful cap to protect students from high interest rates. Yet we still don’t know which index is the best proxy for the government’s cost of providing student loans. All of the comprehensive proposals tie the rate to the 91-day Treasury bill or the 10-year Treasury note, but none of these proposals provides any evidence that its rate is the best proxy for student lending versus another rate.

We all want a long-term fix, but making the switch to a long-term plan today, without addressing these fundamental questions, is a mistake that will not make college more affordable nor help students and the economy.

Legislative proposals with “budget-neutral” approaches may work politically to achieve a deal, but have the practical effect of lowering interest rates for students borrowing today by increasing the costs to future borrowers. Under many of the ‘comprehensive’ deals, a high school senior may benefit from lower rates than current policy while attending college next year, but his younger sister, currently in the 8th grade, will pay for her brother’s low rates by being charged significantly more for her loan in just a few years.

As negotiations continue, Congress must address these questions. If it cannot, then it should pass a short-term, one-year extension of the 3.4 percent rate for low-income borrowers, and revisit the debate over comprehensive reform during reauthorization of the Higher Education Act. We need a deal that is based on research and evidence and is good for ALL students in the short and long term, not a deal for a deal’s sake. Students deserve better.

Thank you for your attention to our concerns. We look forward to working with you to ensure a good outcome for students.


American Federation of Teachers

National Education Association

The Education Trust

The Institute for College Access and Success


United States Student Association

Young Invincibles