Why the Student Loan Problem Is Hard to Fix

The CBO says that if rates fluctuate based on the yield on 10-year Treasury bonds (which both Republicans and Obama have proposed in varying form and with various ramifications), it would allow the government to have a better idea of what they're going to shell out year to year. The red flag the CBO raises is that if the economy takes off and interest rates on Treasury bonds go up, students could be faced with skyrocketing rates unless there's a cap put in place.

So what if nothing happens (this is looking increasingly likely) and rates are allowed to double on July 1?

The government will make money initially, but the amount will taper over time from about $37 billion in 2013 to below $10 billion by 2018.

That's because the rates the government pays on Treasury securities will continue to rise while interest rates on student loans stay constant.

The Obama administration says that would cost students about $1000 each.

The CBO cautions that allowing rates to rise could prompt students to decide not to go to school or to drop out early. That could lead to lower earnings and hurt the economy.

And it could have long-lasting impacts. People would have to devote more future income to paying off the loans, which could delay things like purchasing homes or saving for retirement.

So will the world end if rates go up?

No, but there are some real consequences. And at the moment, lawmakers seem to be better at picking fights for their own benefit than at focusing on what's best for their constituents, namely students and the parents and others who support them.

That makes getting anything done tricky, especially when there's a hard deadline like July 1 looming.

  • 1
  • |
  • 2
Join the Discussion
blog comments powered by Disqus
You Might Also Like...