The Student Loan Rate Hike Is Much Ado about Nothing

A little over a year ago today, President Obama paid a visit to the University of Iowa as a part of his tour on college affordability. I’m a student there, and I attended the rally to hear his arguments straight from the horse’s mouth. Needless to say, it was difficult to keep quiet.

The driving force behind the president’s tour was a looming student loan rate “crisis” that would reverse legislation passed in 2007 that lowered interest rates for federally-subsidized Stafford student loans from 6.8 percent to 3.4 percent. This legislation was set to expire July 1, 2012 if Congress took no action. They took action after pressure from the White House, but only extended the rates for a year, and we’re in the same predicament yet again. This time, Congress did nothing to keep these rates down before heading home for the July 4th recess.

Surely, many left-wing groups will be out in droves very soon, resurrecting the Obama campaign-created Twitter hashtag #DontDoubleMyRate. They’ll demand that Congress return to Washington immediately and stop this “crisis” while they still can. Never mind the fact that then-Senator Obama didn’t think this program necessitated his vote — he’s our savior! #DontDoubleMyRate!

This idea is a complete distraction. The effects of this rate hike will be minimal, and it only takes some basic math to figure it out.

When you’re talking about student loan debts that are, on average, according to President Obama, $25,000 among graduates, the difference is an increase by $850 if the rate cuts aren’t extended. I’m going to go out on a limb and say that if you’re struggling to pay your $25,000 worth of debt, you’re not going to be in much more peril by adding less than $1,000 on top of that.

The problem is federal intrusion in the loan industry to begin with. It has given colleges and universities the rationale to raise tuition as high as they want, because they know that Uncle Sam is effectively setting a price floor subsidy that is guaranteed no matter what. That’s not the “evil banks” raping and pillaging the pockets of unprivileged families, that’s the collegiate presidents and un-firable professors.

The real issue shouldn’t be “don’t double my rate,” but rather “don’t double my principle.” The average total tuition at a 4-year public institution last year was $37,800. In less than twenty years, that number is projected to skyrocket to $108,100.

It’s pertinent to know that any action or inaction here only affects federally-subsidized Stafford student loans, not unsubsidized ones or private variable rate loans. If these rates expire, it puts them on par with the next lowest student loan rate in the country: the unsubsidized Stafford student loans. This is indicative of the entire Obama presidency, where subsidies are lauded but tax cuts, breaks, or loopholes are demonized — despite the fact that any comparison between the two is comparing apples and oranges.

Let’s get real and start having a conversation based on reality rather than distractions and distortions.

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