Americans now owe more in college student loans than on credit cards. Yet unless Congress acts by July 1, the interest rate on new subsidized student loans will double and return to 6.8 percent from the current 3.4 percent. Both President Barack Obama and presumptive GOP nominee Mitt Romney support keeping the low interest rate to prevent college from becoming even more expensive for millions of students. House Speaker John Boehner has scheduled a House vote for Friday, and Congress should extend the low interest rate.
A college education remains the surest path to a middle class life in America. But with Florida and other states severely cutting back on their investment in higher education, the cost of that education is landing more squarely on the students' shoulders. In 2010, college students who had to borrow graduated with an average debt from all sources of more than $25,000. Those students find themselves in a deep financial hole before they even start their careers. As the president explained this week in a speech to students at the University of North Carolina in Chapel Hill, "When a big chunk of every paycheck goes towards loan debt, that's not just tough on you, that's not just tough for middle class families, it's not just tough on your parents — it's painful for the economy, because that money is not going to help businesses grow.''
Five years ago, a Democratically controlled Congress with the backing of 77 Republicans moved to cut the rate on subsidized Stafford loans in half over four years, resulting in the current 3.4 percent. The bill was signed by President George W. Bush. The loans are made directly by the federal government, so it is truly a taxpayer investment in the future. The rates are favorable, and the government pays the interest until the student graduates.
The nonpartisan Congressional Budget Office estimates that keeping the rate at 3.4 percent for another year would cost $6 billion, and House Republicans contend the nation cannot afford the investment. But this is exactly the kind of investment that Americans need to support.
In Florida, 453,000 students have subsidized Stafford loans and can expect to save an average of about $1,000 if the rate is kept at 3.4 percent instead of doubling. Nationally, the average subsidized Stafford loan amount totals about $9,000 a student.
Unsubsidized Stafford loans would remain at their 6.8 percent, and private lenders charge market rates. It's a good use of taxpayer money to make college a bit more affordable and the future a lot brighter for the 7.4 million students who will need subsidized Stafford loans this year. The Obama administration and House Democrats propose closing a tax loophole for high-paid employees of so-called S corporations to cover the cost of keeping the interest rate on the subsidized loans the same. House Republicans should embrace that approach rather than taking the money from Obama's health care reforms as Boehner suggests.