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Rate costly for taxpayers

March 21, 2012
The Leader Herald

Unless Congress stops it before July 1, college students who receive federally subsidized Stafford loans will see their interest rates double - from 3.4 percent to 6.8 percent. It's a problem nearly everyone saw coming, but the Congress of 2007 chose to ignore it.

Back then, politicians trying to make good on campaign promises passed problematic legislation that progressively lowered the rates on these loans to 3.4 percent this school year. The rates are due to go back up July 1.

Now, President Barack Obama is asking Congress to throw away the deadline and maintain the rates permanently at 3.4 percent. The issue is a source of heated debate.

All sides appear to agree failing to bring the interest rate up to 6.8 percent will cost the federal government billions of dollars.

Students and their advocates argue new college graduates already are saddled with great debt. The higher rates, they say, will make matters worse.

Generally speaking, it takes 10 years for borrowers to repay a subsidized Stafford loan. If a student has to pay an extra $1,500 over 10 years as a result of the higher interest rate, he'd have to come up with an additional $12.50 per month.

However, multiplied by the 7.4 million borrowers the president says would be affected, the lower interest rate would cost the government $92.5 million per month. That cost would have to be paid by taxpayers at a time the government must do more to control its spending.

Either way, students or taxpayers are going to have to pay the bill.

An interest rate of 6.8 percent sounds a lot worse than 3.4 percent, but it's still a low rate. Interest rates on private loans can go as high as 11 percent.

If Congress allows the 3.4 percent rate to stick, it's probably going to have to cut billions from other programs to make up for the expense.

Neither choice is a good one, but allowing the rate to double would be the logical decision.



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