Protest the Student Loan Misdeal

Robert Borosage

Reports are that a student loan deal is in the works, with a vote as early as today.  If consummated, it will have bipartisan support in the Senate and the support of the White House.  We urge all to call on your senators today and tell them to oppose the deal.

The deal shafts students.  It links the subsidized student loan rates to the 10-year note – adding a surcharge to that rate.  Students will pay something around 4 percent this year, but the deal is for 10 years. Rates will rise if the economy ever recovers and interest rates go up.  The deal reportedly provides a cap of 8.5 percent for undergraduates, 9.5 percent for graduate students, and a stunning 10.5 percent for parents.

The bad deal results from Senate Democrats getting squeezed by the calendar and the Republican House.  Congress had to act before the August recess to avoid interest rates doubling to 6.8 percent on subsidized loans.  Republicans in the House passed a bill linking the interest rate to the 10-year note with a surcharge designed to gouge students to generate revenue to pay down deficits.  The White House supported the link to the 10 year, but with caps, a lower surcharge that would not raise as much for deficit reduction, and a “pay as you earn” provision to limit payments to a percentage of one’s income.

Senator Elizabeth Warren denounced the whole notion of making money off of student loans for deficit reduction – particularly while the Congress allows multinationals to secret trillions in tax havens abroad to avoid taxes.  She argued that students should be offered for one year the same subsidized rate that we provide to big banks from the Federal Reserve – 0.75 percent – while the Congress got serious about how to make college affordable. Sen. Tom Harkin held out for a two-year extension of the current 3.4 percent rates to give Congress time to get serious. If the deal goes through, students will end up paying more than that – much more over the years – and worse, the Congress will be inclined to do nothing more for a decade.

Lost in the details is common sense.

1.  We have a huge national stake in students getting the education that they merit.  College, if not free, should be affordable for all.  That requires public subsidy.  The prospects for our democracy and our economy depend on a better-educated citizenry.  No one disputes that.

2.  The next generation should not be cash cows for deficit reduction.  It is simply obscene to insist, as Tea Party Republicans do, that interest rates on student loans should be set at rates that generate revenue for deficit reduction.  In an era of massive corporate loopholes, when millionaires pay lower taxes than their secretaries, when Big Oil and Big Pharma pocket billions in subsidies, it is an outrage that Congress should gouge students seeking an education.

3.  Students should not be forced into deep debt – an average now of nearly $27,000 for graduates of four year colleges who take out loans – simply to get a higher education.   We need action to get college costs under control, while getting states to stop cutting support for colleges and universities, laying more and more of the costs of students and their families.

4.  Student loans should be subsidized, not “market-based.”  We subsidize the big banks with near-zero interest rates.  We subsidize homeowners with mortgage tax deductions.  Corporate subsidizes are a continuing scandal.  It is bizarre that we consider advanced training or higher education vital – and then decide that it will be available only for those willing to go into debt, with loans that are “market-based.”

A protest against the deal – if it is consummated – is not likely to be successful in stopping it.  But it is necessary.  It will put legislators on notice.  What is an acceptable deal inside the Beltway is not acceptable to voters across the country.  This deal must be considered not as a 10-year fix, but a one-year stopgap.  Congress must take up the question of making college affordable next year, so we can hold them accountable at the polls in 2014.

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