Student Loan Extension: Bad Policy, Bad Politics
The passage of H.R. 4628 on Friday signaled a troubling return to the days of promoting bad policy for the sake of what Washington insiders perceive to be “good” politics. Thirty Republicans, led by Rep. Rob Woodall (R-GA), stood firm in their belief that the government should not be in the business of subsidizing higher education and voted against the bill. Unfortunately, the vast majority of Republicans took the opposite approach.
This legislation will keep the current Stafford student loan interest rate at 3.4 percent and prevent it from returning to its 2007 rate of 6.8 percent. As someone who still possesses outstanding student loans, I fully realize that I am expected to be ecstatic about this news as President Obama makes it seem like it would benefit me personally. However, what the President is not admitting is that the bill will only benefit those applying for taxpayer-subsidized Stafford loans between July 1st of this year and June 30th of next year.
Given the ramifications of such government interference, there is far more cause for concern than celebration. By manipulating interest rates and artificially keeping them low, lawmakers are engaging in the same type of risky behavior that contributed to the housing bubble bust in 2008, leading to our current economic crisis. While it is important to note that no one can ever predict the next bubble, it is hard to miss the warning signs that government intervention is doing more harm than good.
According to The Heritage Foundation, college costs have increased 439 percent since 1982 while federal spending on Pell grants has increased 475 percent since 1980. Student loan debt now exceeds credit card debt. A report last May showed that nearly 85 percent of college graduates returned home to live with their parents—a damning indicator of the job market.
While job growth has marginally improved since, the fact remains that by keeping interest rates low and allowing just about anyone access to taking out a student loan, lawmakers in both parties are creating a toxic environment via perverse incentives. With lower interest rates, students will continue to take out loans and drive up debt, which in conjunction with the poor economic climate will increase the likelihood of default when they are unable to find a job. Should this occur, it will be taxpayers who will be left paying the trillion dollar tab.
There are better ways to make college more affordable than engaging in budget gimmickry and empty promises. President Obama has cynically used the student loan interest rate to bolster his standing with younger voters. House Republicans have followed suit, but have promised to pay for this one year extension by eliminating $5.9 billion from the Prevention and Public Health Fund in Obamacare.
There are several problems with this approach, not the least of which is the fact that such a proposal is tantamount to accepting Obamacare as a slush fund to raid when money is desired for any sort of political gimmick, when the proper path is to repeal the law entirely. And should Obamacare be repealed or overturned by the Supreme Court, how will Republicans pay for this student loan extension?
Subsidizing higher education is bad policy and ultimately bad politics. It fails to stem the rising cost of college and only contributes to the ever-growing burden of debt on American taxpayers. Faced with such long term consequences, it would have been far more preferable and fiscally responsible to reject President Obama’s premise and counter his cynical politicking with real, market-based solutions.