Jul 11 2013

Student Loan Deal: From Bad to Worse

On July 1, student loan rated double to to 6.8% when Congress failed to take action. This placed an enormous debt on students who start off in deep debt in an seriously depressed labor market.

In the Senate, a vote to restore low interest rates temporarily on some new federal student loans failed to advance sparking a clash among Democrats.

Liberal firebrand Sen. Elizabeth Warren (Mass.) blasted a fellow Democratic senator Tuesday as a dispute over student loan rates escalated divisions within the party.

“Elizabeth came out very strong against Manchin,” said a Democratic senator who requested anonymity to discuss the exchange. “She said, ‘They’re already making money off the backs of students, and this adds another $1 billion.‘”

Warren was referring to a deal Sen. Joe Manchin (D-W.Va.) and two other members of the caucus, Sens. Tom Carper (D-Del.) and Angus King (I-Maine), struck with Republicans to peg student-lending rates to the 10-year Treasury notes.

It appears that Manchin, Carper and King have prevailed with a deal that will possibly be even more costly for future college students:

Rates on new student loans from the Department of Education, the dominant source of college loans, would be pegged to the yield on the 10-year Treasury note. Undergraduates would pay 1.8 percentage points above the government’s cost to borrow for 10 years. Graduate students would pay 3.8 percentage points above the rate. Parents would pay 4.5 percentage points above the benchmark, officials said.

The yield on the 10-year note was 2.57 percent late Wednesday, according to Bloomberg. Assuming the measure is signed into law as is, most students starting school this fall and their parents would enjoy lower borrowing costs than the rates that prevailed during the last school year.

But their savings would effectively be subsidized by future borrowers, who would pay more relative to current law as the economy improves and interest rates rise. [..]

Many Senate Democrats have been reluctant to support the measures, in part because of the possibility that future students would pay much higher rates than they do under current law.

Before Wednesday’s failed vote, Sen. Bernie Sanders (I-VT) called for student loan rates to be returned to 3.4%.

“We have a major crisis in our country today in terms of the high cost of college and the incredible debt burden that college students and their families are facing,” Sanders said in a Senate floor speech. “Our job is to improve that situation, to lessen the burden on students and their families — not to make it worse.”

The deficit hawks have prevailed to once again put the burden of the non-existent debt/deficit crisis on the backs of those who can least afford it.  

1 comment

  1. TMC

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