In 2007, the Democratic majority in Congress enacted legislation to double interest rates on new federal student loans from 3.4 percent to 6.8 percent in 2012. At a time when tuition is on the rise and employment prospects are low, the pending rate hike would impact millions of college students across the country. That’s why Republicans will be working on this issue in the coming weeks and months. Yet, with an issue that so directly hits their wallets, students and families are surely wondering how this rate hike came to be hanging over their heads. It’s a good question.
The answer is it was a case of Democrats’ election year promises making for half-baked policy. As the Associated Press noted last week, “it was House Democrats who cut interest rates on the school loans in 2007 and included an expiration provision that placed the looming increase in the middle of an election year.” Let’s review.
Part of their campaign vow to “cut student loan rates in half,” congressional Democrats in 2007 enacted a law they claimed would help address rising college costs (In reality, the cost of education at a four-year public college has gone up 25 percent over the last three years). Surprising to no one, however, Democratic leaders promised more than they had found a way to pay for, so they phased in the change over a period of four years to minimize the price tag. The four-year phase down went from 6.8 percent to 6.0 percent for the 2008-09 school year, to 5.6 percent for 2009-10, to 4.5 percent for 2010-11, and finally to 3.4 percent for 2011-12. Thus, in the middle of an election year – and even though the 3.4 percent rate has been in place for less than a year –the Democrats’ plan doubles rates back to 6.8 percent for the 2012-13 school year.
Now, in yet another effort to distract from his economic record that is leaving the 50 percent of new graduates jobless or underemployed, the president is looking to create a fight over how to deal with the rate hike. What the president hasn’t done is explain how he responsibly plans to pay for the cost of the one-year extension he is proposing.
President Obama has said many times, “we can’t just keep subsidizing skyrocketing tuition; we’ll run out of money.” Unfortunately, that’s all the president’s plan does. The long-term costs of extending the rate cut could amount to more than $30 billion over the next five years. With no long-term solution, the president is offering only to punt the issue until after the election when rates would again be scheduled to double – a fact he’s likely to omit as he travels to colleges in swing states over the next two days. If we’ve learned anything from the president’s campaign travels, candor is not usually a priority. No, we’re much more likely to get straw men and demagoguery from the president on the stump this week. Because if the president was looking to be forthright, he’d admit that this looming rate hike is of his own party’s creation.