WASHINGTON, D.C. | June 11, 2012 -
By Rep. John Kline (R-MN)
Unless Congress takes action, student loan interest rates for millions of borrowers will double in just a few short weeks.
The House has already done its part by approving the Interest Rate Reduction Act, bipartisan legislation that will prevent a scheduled interest rate increase on subsidized Stafford Loans without piling additional costs on taxpayers. In an effort to find common ground, Republican leaders also sent President Barack Obama two other sensible proposals to fully pay for an extension of the current 3.4 percent rate.
Unfortunately, the president and Senate Democrats have yet to advance a responsible plan that maintains the lower interest rate without raising taxes or adding to the deficit, leaving student loan borrowers in limbo. Not only is this gridlock unnecessary, it also takes attention away from the real issue at hand.
For too many years, politicians in Washington have been eager to pledge more hard-earned taxpayer dollars to help deal with the student debt load. But this doesn’t sit right with the many Americans who take pride in making fiscally responsible choices and paying off their loans on time. Adding insult to injury, like so many of Washington’s short-term interventions, federal expansions of student aid may make college costs worse.
Annual tuition and fees at public four-year universities cost an average of $4,793 in 2001. Today that price tag is $8,244 – a 72 percent increase. Similar trends can be seen in private institutions and two-year degree programs. Meanwhile, federal subsidies in the form of grants, loans, and work study have increased a whopping 155 percent in the last decade, reaching $141 billion in the 2010-2011 academic year.
We seem to be caught up in a troubling cycle of chasing rising tuition with more taxpayer dollars and new schemes to ease student debt. As Mitt Romney recently stated, “America is fast becoming a society where education is unaffordable, a government loan is an entitlement, default is the norm, and loan forgiveness is the expectation.”
Let’s get one thing straight: No one wants Stafford Loan interest rates to increase. Americans have enough working against them right now. The student debt load has surpassed $1 trillion for the first time in history, and one in every two college graduates is either unemployed or underemployed as a result of the president’s abysmal economic policies. The last thing folks need to worry about is a looming interest rate hike.
If we want to provide real certainty to students, we must fundamentally reform the system. The Interest Rate Reduction Act takes a first step toward providing critical stability by eliminating the threat of an immediate interest rate hike while making clear the need to move toward a long term solution that serves the best interests of taxpayers and borrowers.
What might that long term solution look like? Here’s one idea: Let’s take politicians out of the college cost equation and base student loan interest rates on the free market, rather than the whims of Washington.
Stafford Loan interest rates used to be calculated using a variable rate that was adjusted to fall in line with the market each year. Despite Republican efforts to preserve a market-based system, Congress voted to set the rate at 6.8 percent starting July 1, 2006. Had we maintained the variable rate available in 2005, today’s borrowers would enjoy interest rates below 2.5 percent.
Of course, it will take a lot more than a lower interest rate on student loans for Americans to feel confident and secure about the future. They need a strong economy, one in which young people can find a good job out of college, or access the education necessary to begin a successful career in a high-demand field – even without a traditional postsecondary degree.
According to the Bureau of Labor Statistics, 4.1 million Americans ages 18 to 29 are unemployed, despite more than 3 million job openings nationwide. Employers largely attribute this discrepancy to the lack of a skilled workforce, and many workers admit they struggle to find essential training for available jobs.
Toward that end, Republican leaders on the House Education and the Workforce Committee are advancing legislation to revamp and strengthen the nation’s workforce development system, which has become corroded and ineffective after years of neglect. Even President Obama has said we need to “cut through the maze of confusing [job] training programs.”
The Workforce Investment Improvement Act of 2012 would consolidate and eliminate dozens of ineffective or duplicative programs, enhance the role of job creators in workforce development decisions, and improve accountability over the use of taxpayer dollars. Most importantly, it would ensure workers are better connected with opportunities to gain the skills they need to fill the jobs available - enabling employers to grow their businesses and in turn, our economy.
As our nation continues to endure a painfully slow recovery in the wake of a crushing recession, much can be done in Washington to support future prosperity – not just for students and borrowers, but also for families, job seekers, and employers.
I look forward to working with leaders on both sides of the aisle to develop a lasting solution that aligns student loan interest rates with the free market, while also advancing policies that encourage economic growth and help put more Americans back to work.
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