Student Loan Deception

In an attempt by the Democrats to show that they are interested in education, they have announced that they plan to introduce legislation to cut interest rates on students loans in half from the current 6.8 percent.

On the surface this sounds like a great idea and that’s what they want the public to think, that this effort will make college more accessible. The reality is that accessibility has nothing to do with the rates on student loans, but more on family income and financial aid. Also since student loans aren’t repaid until after graduation chopping the interest rate has no immediate effect on students’ budgets.

Since student loans are subsidized by the government the net effect of this proposed cut will be an additional $6 billion burden on taxpayers over five years. The Democrats plan to offset this burden by reducing the guaranteed rate the lending institutions receive for making the loans, increasing the fee they charge the lenders to handle the loan and reducing the guarantee rate on loans that are defaulted. These measures will cover about one third of the $6 billion figure leaving the taxpayers to foot the rest of the bill at this point.

In their zeal to go after big business, the Democrats are forgetting that when you increase the cost and lower the profits, businesses react by cutting back and reducing options. In this case student borrowers will be hurt more than helped as fewer choices will mean less accessibility not more.

The problem with accessibility and affordability really doesn’t lie with the student loan program since financial aid programs have gone from $9.6 billion to $48 billion in the last 5 years, but is largely due to the rapid increases in tuition. According to the College Board, the average tuition adjusted for inflation has jumped 86 percent at public colleges and 52 percent at private colleges since the 1991-92 school year during a period of low inflation. Loans are capped so students don’t take on excessive debt, tuition isn’t.

If the Democrats really wanted to help students then maybe they should be taking aim at the schools that have raised tuitions with impunity to pay for higher faculty salaries and fatten their already large endowments. But since academia is largely a bastion for liberal thought that would be like biting the hand that feeds them and so the schools are safe from any attack by the party.

Unfortunately the students who should be fighting this change have been lied to and misled by the media and the Democrats and by the time they realize what has happened it will be too late.

Don Irvine is the chairman of Accuracy in Media.