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With college costs continuing to soar, student loan debt at about $1 trillion and the average member of the Class of 2013 owing $26,000 on graduation day, Congress has until July 1 to set a new interest rate for student loans or see the rate double from 3.4 percent to 6.8 percent.
Congress set the 3.4 percent rate in 2007 on the premise it would rise gradually to 6.8 percent by last year. With the country in the middle of a presidential and congressional election, Congress extended the 3.4 rate to this July 1. Congressman Joe Courtney, D-2nd District, was a leader in the fight to retain the lower rate.
Expectations that a permanent agreement on interest rate charges would appear in a post-election, less politically heated environment, proved unfounded. Rep. Courtney wants to freeze the Stafford loan rate at 3.4 percent for two years.
While we admire Rep. Courtney's persistence, this situation cries out for compromise and a more permanent solution. The House has passed rate-setting legislation and the Senate is looking at various solutions, including one from President Obama, that differ mainly on the interest rates they would impose.
Republicans believe the markets should dictate what a student pays for borrowing money and the Democrats contend they should get a break, and so do we.
The most generous proposal on behalf of students, rather than banks, comes from Sen. Elizabeth Warren of Massachusetts, a liberal Democrat who pointed out in a recent article in The Boston Globe that, "unlike big banks, students do not have armies of lobbyists and lawyers. They're banking on us to do what is right."
She would set interest rates for students at the same level big banks receive from the Federal Reserve and thereby reduce the current interest to 0.75 percent for one year while Congress works on a longer term solution. Unfortunately, one year from now happens to bring us to another election.
Sen. Kirsten Gillebrand, a New York Democrat, suggests setting the rate at a fixed 4 percent and allow graduates with years of debt to refinance their loans once the rate is fixed.
President Obama would have students pay more, basing the rate on the interest on a 10-year treasury note plus just under 1 percent and fixing the rates for the life of the loan. According to Congressional Budget Office estimates, this would raise rates for new borrowers to 5 percent next year and to 7.7 percent for those borrowing for college in 2023.
The House Republicans have already passed a bill that would base the interest on that same 10-year treasury note's rate, plus 2.5 percent, compared to President Obama's proposal of less than a percent.
President Obama would fix the rate, while the House would make it variable, capping loans for undergraduates at 8.5 percent for the life of the loan, while loans for graduate students would have a 10.5 percent cap.
It's too much, a windfall for the banks.
Fortunately, the House bill has no chance of becoming law. It wouldn't pass the Senate, but even if it did, the White House promises a veto. Sen. Warren's bill has about the same chance of becoming law - none - but she deserves credit for trying to reduce the outrageous costs of a college education, caused mostly by the unwillingness or inability of colleges to contain these costs.
This also reminds us that President Obama had vowed during the campaign to base federal aid on the individual institution's willingness to contain costs. How is that going?
According to a Bloomberg study released last August, the cost of college in the United States has increased an incredible 1,120 percent over the past 35 years or four times faster than the increase in the consumer price index. In the same period, the costs of medical care, generally believed to be out of control, have gone up a mere 602 percent and food costs are up 244 percent.
Getting tuition costs under control is a tough challenge, finding a compromise on student loan rates should be a relatively easy task by comparison. In normal times, in other words most of our history, such a compromise would be in order.
Unfortunately, abnormal is the new normal in Washington.