We’ve talked numerous times about student loans and the debt assumed by college-aged adults in this country. These discussions centered around the poor decision-making of 18 year olds and their co-signers to enter into contracts with loan providers for an education which can cost a ton and provide little return benefit depending on a student’s major and choice of institution.
Recently student loan debt has been in the news again, this time because politicians want to tie student loan interest rates to market-based interest rates allowing them to fluctuate (within a capped limit) as the economy improves or worsens.
According to this opinion piece from Rep. John Kline, the United States should force loan borrowers into a market-based interest rate for student loans to allow savings to those borrowers:
But we need to move away from a system that allows Washington politicians to use student loan interest rates as bargaining chips, creating uncertainty and confusion for borrowers.
With the Smarter Solutions for Students Act (HR 1911), which passed the House of Representatives with bipartisan support on May 23, we upheld that promise. This responsible legislation simply moves all federal student loans — except Perkins loans — to a market-based interest rate and builds upon a proposal put forth by President Barack Obama earlier this year.
Just like the president’s plan, our legislation will apply a market-based interest rate to all Stafford and PLUS loans, ensuring borrowers will be able to take advantage of today’s low rates. But unlike President Obama’s proposal, the Smarter Solutions for Students Act takes an additional step to protect borrowers against higher interest rates by imposing a fair and reasonable cap. Based on current market conditions, HR 1911 could lead interest rates to drop by as much as 2 percent for millions of Stafford and PLUS loan borrowers this summer.
Additionally, the legislation maintains students’ ability to consolidate their loans upon graduation and lock in a low fixed interest rate for the life of the loan. And students still can take advantage of existing federal repayment and debt management initiatives, such as the generous income-based repayment programs, numerous loan forgiveness programs and opportunities for deferment or forbearance.
As someone who now has a student loan (about $5000) to pay off the remainder of my graduate schooling (most of it was paid for by my employer at the time and it should be paid off within a year), I made a conscious effort to reduce how much I had to pay for my education and I have little sympathy for those who make poor choices and rack up unending amounts of debt. However, this particular bill is not something which we should back because it tacks on large hidden penalties because legislators, the same ones who say they shouldn’t be fixing interest rates because they don’t understand the system, are legislation without understanding the system. The irony is typical but still disappointing.
What do you think about this one? Do you think that Kline’s bill is a worthy plan or do you agree that the government should be loaning out dollars to students to help build a useful workforce instead of making money on the enterprise? Whatever you have to say about this one go ahead and comment on as I’d love to hear what you have to say.