The Obama administration has found itself at odds with a key voting block—college students and their advocates—as well as many of its Democratic allies in Congress, because of an important, if technical, budget proposal that could have significant implications for college access.
In a move intended to stave off a doubling of interest rates on federally backed Stafford Loans over the summer, the administration is seeking to shift those interest rates from the current predictable, fixed-rate system to a market-based rate at the time of the loan. Right now, interest rates on subsidized Stafford Loans are set at 3.4 percent, but they're slated to jump to 6.8 percent in July, unless Congress and the administration act.
The shift to a 6.8 percent fixed rate could cost a student with $20,000 in debt—roughly the national average—an additional $12,000 over the life of their loan, according to an analysis by the Institute for College Access and Success, a nonprofit organization in Oakland, Calif.
The administration and some Democrats in Congress have very different ideas about how to head off that potential rate increase. Advocates for students agree that under current interest rates, which are at historic lows—for instance, the rate was 1.73 on April 17—President Barack Obama's fiscal 2014 budget proposal offers a better deal for borrowers than they're getting right now.
But the proposal doesn't place any cap on the interest rate, leaving students open to much more expensive loans if interest rates soar in the future, critics argue.
Just hours after the Obama administration released its budget blueprint April 10, a coalition of student-advocacy groups including the National Campus Leadership Council, U.S. PIRG, Our Time, Rock the Vote, and the Young Invincibles put out a joint statement disparaging the loan plan.
"Students have never taken out federal student loans without a cap on how high interest can go," they wrote. "The president stood with us by investing in higher education during his first term, and we're concerned that his budget does not deliver the same investment this time around."
Nope - sounds like he's throwing college students and their parents overboard.
6.8% interest rates on student loans is high.
But leaving the Stafford Loan program without a cap means those rates can go much higher than that.
Sure, with the Federal Reserve printing press in overdrive these days, the loan rates are low right now.
But they won't remain low forever.
Not with all those extra Uncle Ben's Federal Reserve Chairman Bernanke threw into the system that eventually he (or his successor) will have to pull out of it.
I dunno, maybe we'll never see 17% interest rates the way we did back in the 70's.
But if we did, and there was no cap on Stafford Loans, that's where those interest rates would go.
Hey, Obama, how about extending the 3.4% rate on Stafford Loans by going on the TV and telling everybody Republicans want to double the loan rate to 6.8% so they can pay off their banker and Wall Street friends?