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Topic: Student loans: Degrees of debt
Replies: 3   Last Post: Jul 13, 2013 1:52 PM

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Jerry P. Becker

Posts: 16,576
Registered: 12/3/04
Student loans: Degrees of debt
Posted: Jul 12, 2013 9:29 AM
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From The Chicago Tribune, Tuesday, July 9, 2013. See,0,7024441.story
Student loans: Degrees of debt

The phoney debate over student loans

The Economist

SHOULD the government subsidise the loans students take out to pay
for university? Washington's politicians seem in little doubt:
Republicans and Democrats alike are in favour. But how generous
should the terms be? That question is much thornier--so thorny, in
fact, that Congress failed to answer it before adjourning for the
Fourth of July holiday. As a result, the law permitting the most
generous subsidies lapsed this week. The government will still offer
students loans, but at an interest rate of 6.8%, twice the previous

The change does not affect any of the 39m Americans who currently owe
the government a collective $1 trillion in student debt. Their rates
were fixed at the time of borrowing; the new one applies only to new
loans. Moreover, only about a quarter of the loans to be issued this
year will be of the most generous sort, the Congressional Budget
Office (CBO) estimates. Others already carry rates as high as 9%.

Yet the question is a weighty one. The CBO reckons the government
will lend students a further $1.4 trillion over the next decade. The
business is profitable, in that the government charges borrowers a
higher rate of interest than it pays on its own debt. But the
students' rates are fixed, whereas the government's borrowing costs
vary over time. Much of the money goes to middle-class students. Its
easy availability may be one reason why college fees have risen so
much faster than other prices in recent decades.

Ideas for reform abound. The House of Representatives approved a bill
earlier this year that would allow the interest rate on future loans
to float. Borrowers would pay whatever the government pays on its
ten-year bonds, plus 2.5 percentage points. Republicans in the Senate
have proposed a three-percentage-point spread, with the rate fixed
for the life of the loan. Democrats, on the whole, favour lower fixed
rates, although with much variation in the benchmark rate, caps on
interest and so on.

Most observers assume that Congress will pick one of these options
over the summer, before colleges send out their tuition bills for the
new academic year, prompting students to submit their loan
applications. At the very least, it could extend the current system
for a year, as it did in 2012. But do not expect much soul-searching
about whether this is the best use of the government's money, or how
college could be made more affordable.
SIDEBAR PHOTO: Sen. Joe Manchin (D-WV) speaks during a press
conference after meeting with fellow Democratic Senators, on Capitol
Hill. Manchin spoke to reporters about student loan legislation.
(Drew Angerer / Getty Images / July 9, 2013)
Jerry P. Becker
Dept. of Curriculum & Instruction
Southern Illinois University
625 Wham Drive
Mail Code 4610
Carbondale, IL 62901-4610
Phone: (618) 453-4241 [O]
(618) 457-8903 [H]
Fax: (618) 453-4244

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