The bipartisan student loan bill signed by President Barack Obama Friday was a reasonable compromise that will offer lower loan rates to 11 million borrowers for the near future. But this should be just the first step in reining in the egregious costs of a college education in this country.
The bill was one of the few pieces of legislation on which both Democrats and Republicans could find common ground before leaving Washington on their August break. If they had failed to reach an agreement, interest rates on student loans would automatically have doubled from 3.4 percent to 6.8 percent.
Under the compromise, interest rates, which had been arbitrarily set each year by Congress, now will be tied to the rate on10-year Treasury notes. The rates would be locked in for a year, but each subsequent year the loan could change as the economy improves or falters.
However, interest rates were capped at 8.25 percent for undergraduates. Rates could not top 9.5 percent for graduate students, and parents’ rates would top out at 10.5 percent.
According to Congressional Budget Office estimates, rates would not reach those limits for more than a decade.
Some Democrats had favored leaving loan rates at current levels for at least another year. But Republicans and the White House wanted to key the rates to the financial markets.
Democrats went along once Republicans agreed to cap interest rates and lock in rates for the life of each year’s loan.
The White House asserts that the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges. In all, nearly 18 million loans will be covered by the bill, totaling about $106 billion this fall.
At the bill signing, however, Obama pledged to engage in a broader, concerted fight to bring down the costs of a college education. Senate Democrats also have demanded a Government Accountability Office report on college costs.
While Congress managed to compromise on loan rates, many students still face potentially crippling debt when they graduate. There is about $1 trillion in outstanding student-loan debt in the U.S. today, and federal student loans make up about $850 billion of that.
The average student graduates with about $26,000 in loan debt. That’s an enormous burden for someone just entering the job market – especially at a time when the available jobs often are low-paid temporary jobs.
The GI bill enacted after World War II, which helped returning veterans afford a college education, was a ticket to prosperity for hundreds of thousands of young Americans. And a college education still is the surest path to upward mobility for today’s young people.
Despite the costs, college remains the best investment in the effort to land a better job and build a better future. But the cost of college is completely out of reach for many and a financial ball and chain that will hamper many others for years after they graduate.
Curbing the cost of student loans is a necessary first step. But, in the spirit of the GI bill, the nation also must ensure that young people at all economic levels have access to an affordable college education.
Failure to do so would stunt not only the opportunities for hundreds of thousands of Americans but also the future of the entire nation.