Interest rates on federally subsidized student loans officially double

In the summer heat of the election last year, Congress passed a one-year extension on keeping the interest rate for federally subsidized Stafford loans for college students at the artificially low rate of 3.4 percent — and the sand finally ran out on that temporary stopgap today, hiking the rate up to 6.8 percent. Republicans have been proposing to link students loan rates to the freer financial-market benchmarks instead of allowing Congress to arbitrarily determine what they deem to be an appropriate rate, while Democrats are looking to keep the interests rates as low as they in their infinite wisdom see fit. There’s still a possibility that Congress could pass some kind of deal in the near future, but an agreement isn’t looking likely, via Fox News:

President Obama included a variation of that market-based approach in the budget he sent to Congress earlier this year, leaving his fellow Democrats trying to block his efforts.

“Why Senate Democrats continue to attack the president’s plan is a mystery to me, but I hope he’s able to persuade them to join our bipartisan effort to assist students,” Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, said last week

Senate Majority Leader Harry Reid said that a proposal to tie loan rates to the 10-year treasury note yield could never pass the Senate and that he couldn’t back something that doesn’t include stronger protections for students and parents.

“There is no deal on student loans that can pass the Senate because Republicans continue to insist that we reduce the deficit on the backs of students and middle-class families, instead of closing tax loopholes for the wealthiest Americans and big corporations,” Adam Jentleson, a spokesman for Reid, told Fox News last week. “Senate Democrats continue to work in good faith to reach a compromise but Republicans refuse to give on this critical point.”

Er, we shouldn’t reduce the deficit on the backs of students and the middle class? How about we shouldn’t be continually growing the deficit, the consequences of which will eventually fall upon students and the middle class? Anyone?

Is this particular hike on certain student loans really such a bad thing, however, for everyone involved in the long run? As Neal McCluskey points out at Cato, the federal government’s interference is directly responsible for a lot of the massive tuition inflation that’s been going on in recent years:

In the long term, it might actually be good if these rates – which will only affect some federal borrowers – go up. (Congress could still lower them retroactively.) Why? Because federal aid has fueled decades of rampant price inflation, giving basically anyone whom a college would accept – and many colleges will accept anyone – the money necessary to pay sky-high prices. Perhaps the rates rising will dissuade some people from going to college who should be doing something else, or some people going to college who should be there from choosing a more expensive school that offers no better academics but lots of superfluous frills.

Although the uptick likely won’t have a major effect on too many consumers’ choices, higher interests rates could perhaps dissuade some potential students from taking on the costs, and force institutions to streamline their budgets and/or the market to diversify with more and more efficient and practical education options.

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