Politics and student loans

As you're probably aware, especially if you're a college student or know one, there are efforts under way to extend the current 3.4% interest rate for popular and widely used Stafford college loans. The bipartisan bill that set the rate is still due to expire July 1, causing the rate to double, but given political pressure there's reason to think the current rate will be extended.

Republicans have been generally opposed to the extension and have taken a lot of political heat for that, so predictably they've been trying to put a spin on it. First House Speaker John Boehner tweeted that it was all the Democrats’ fault because the bill setting the lower rate to start with had been passed by a Congress with Democratic majorities and it (quite sensibly) didn't make the lower rate permanent. (Steve Benen wrote a nice debunking of that nonsense.)

Then the House passed a Republican bill purely for purposes of creating attack ads. It would keep interest rate low (which many House Republicans had opposed), but it would also completely eliminate unrelated programs for preventing congenital heart defects and fetal alcohol syndrome, not to mention cutting funding for breast cancer and cervical cancer screenings and childhood immunizations. Why? Because this would keep Democrats from voting for it, and that way Republicans could run ads saying, “Democrats voted against keeping college loans affordable.”

The sad thing is that many voters fall for crap like this.

Meanwhile, the Romney campaign has suggested that college tuition costs are high because “this president decided to take over the student loan market.” Of course, tuition has been rising rapidly for many years (in part because of falling state support for higher education), and in any case Obama did not “take over the student loan market.” What he did achieve was cutting off a flow of taxpayer money to banks.

See, years ago, partly in response to rising tuitions, the federal government started in effect co-signing some student loans. This at first seemed like a good idea all around. The government wouldn’t put up any money up front, but by making the loans essentially risk-free, they’d encourage banks to make more of them.

And indeed the banks did. In fact, banks made tons of money on the loans and didn’t try very hard to collect them, since they had that nice government guarantee and lots of resulting taxpayer dollars.

Back in the 1990s, Bill Clinton introduced a pilot program to make a limited number of loans directly to students, with repayments through the tax system. This proved a huge success, with much lower rates of default and far lower costs than the loan guarantee program. Under Obama the failed guarantee program was phased out and the successful direct loan program was expanded.

This is not a “takeover” of the college loan business, since private lenders can still make as many student loans as they want. They just can’t take a free ride on the taxpayers when they do it.

Again, Benen has a good, concise piece on this.

In addition, the Obama administration has started cracking down on a major source of student loan defaults. For years for-profit colleges have made money by recruiting as many students as possible and helping them get guaranteed loans or use their VA educational benefits, and not worrying too hard about whether their courses were worth taking, their degrees worth having,  or their students qualified. Graduation rates were dismal. The administration has launched investigations and taken steps to warn veterans in particular about the crooks. ABC News has a useful article on the subject.

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