Editorials

Editorial: An equitable interest rate

By
Monday, March 10, 2014

As the student loan debt burden continues to grow, we must search for options that can help students. One such proposal — announced last week by Sen. Elizabeth Warren, D-Mass., at an event held by the nonprofit Generation Progress — would permit students with federal loans to refinance at 3.86 percent interest. Warren a proponent of the plan, advocates paying for this refinancing with a new “Buffett Rule” tax on individuals who make more than $1 million per year, Inside Higher Ed reported recently. This proposed solution is a reasonable and fair-minded initiative designed to help students who are just trying to get ahead. We are heartened by greater progressive interest in student loan refinancing, and we hope that this along with other proposals will gain greater traction.

Warren noted that the current $1.2 trillion student loan burden is serving to “(penalize) young people for getting an education,” while the federal government, through its student loan program, actually nets billions of dollars each year, Inside Higher Ed reported. This serves as a particularly cruel regressive tax on students that must be adjusted. Refinancing student loans at a lower interest rate, then, could save many students about $1,000 per year.

Tuition costs are also rising because of decreased public investment in higher education. Last week, the liberal think tank Demos released a report noting that 49 states have cut higher education spending since the recession, and in 28 of the states, spending dropped by more than 25 percent. While federal cuts leave university systems struggling, colleges are all too likely to shift debt burdens onto their students. In the current financial aid system, colleges are paid upfront, and have no financial penalties if their students are burdened or have trouble finding work after graduation. Thus, many now advocate the controversial idea that colleges should have “skin in the game,” hoping that it will lead to greater concern about student employment prospects. Warren, along with Sens. Jack Reed, D-R.I., and Richard Durbin, D-Ill., is also co-sponsoring a bill that would penalize colleges whose students have high default rates. If graduates (or non-completers) of a certain school struggle after attending, the college should be held accountable.

The ramifications of rising student loan debt are not yet fully apparent, but they will be systemic. Students with loan burdens are now less likely to buy houses or take out car loans, and they more frequently live with their parents. They also have lower credit scores, the New York Times reported last month. Further, unlike other forms of debt, student loans are typically non-dischargeable in bankruptcy. As students move into new phases of their lives, they should not be forever trailed by expenses and decisions from their teenage years. Rohit Chopra, student loan ombudsman and assistant director of the Consumer Financial Protection Bureau, has warned that “if left unaddressed, … rising student loan debt may prove to be one of the more painful aftershocks of the Great Recession,” the Times reported. Lowering student loan interest rates will not solve this problem, but it is a worthwhile start.

 

Editorials are written by The Herald’s editorial page board: its editors, Matt Brundage ’15 and Rachel Occhiogrosso ’14, and its members, Hannah Loewentheil ’14 and Thomas Nath ’16. Send comments to editorials@browndailyherald.com.

  • Common Cents

    2008 showed that cheap credit inflates bubbles. Why are we advocating more of the same?

    Lowered interest rates for student loans don’t mean anything if (1) tuition continues to rise and (2) future earning opportunities (jobs) continue to be rarefied. Cheap student loans are inherently tied with tuition spikes as cheap credit inflates demand. This demand in turn prompts schools to overinvest in non-mission critical capital projects in order to attract the best and brightest in a sea of many many applicants, which drives up borrowing and tuition in a vicious cycle.

    The problem isn’t interest rates (which are comparatively low already). It’s the entire educational business model.

  • Clifford Sondock

    “Tuition costs are also rising because of decreased public investment in higher education”….what? Lower interest rates and Government subsidy raises demand, which rises prices. Forget “equitable interest rates”… try market interest rates.