April 27, 2012 at 11:30 am / by Hannah Thoreson
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It seems that Republicans and Democrats agree on one thing: the federal government should continue dumping taxpayer money into the financial vampire that is the university system. Both parties have arrived at the conclusion that the interest rate on federally-subsidized student loans for undergraduates should be 3.4% instead of 6.8%.
This is bad policy, even if it makes for great election year politics.
The artificially-low interest rates and nonexistent borrower qualifications are a subsidy, and that has the same market-distorting effects that any other subsidy would have. Since the universities know the easy money will be there, they will continue to raise tuition prices. This has the end result of making a college education more unaffordable, not less.
It is also terrible fiscal policy. There is literally no way to justify the federal government borrowing money at one interest rate from China or institutional investors, and then turning around and lending it out to people with a high risk of defaulting at another extremely low interest rate. This is a point that even the Cato Institute failed to make. What happens if the interest rate on U.S. government debt climbs, or if the student loan default rate becomes unsustainable? The program may be something that can be operated at minimal cost to taxpayers now, but it can’t be assumed that the conditions that have enabled it will go on forever.
The Democrats’ proposals to pay for the subsidies also advocate for new taxes. On the Senate side, the plan includes changes to the way payroll taxes are calculated for the owners of small businesses. It’s hard to determine what the House Democrats mean by ending subsidies for oil and gas companies, but usually it just points to the same tax breaks that all businesses can get.
The House GOP has put forward a plan that shifts spending away from a public health fund utilized by the Affordable Care Act. While it’s clever to use a technicality like student loan interest rates to attempt to chip away at ACA’s destructive potential, it doesn’t make the outcome of increasing the amount of student loan debt owed to the federal government desirable.
Finally, while Obama is shamelessly campaigning on a false policy dichotomy between his plan for student loans and the Republicans’, he had two opportunities to vote for the lower interest rate as a Senator and never did. It should be very difficult for anybody to believe that going on a college tour selling a garbled version of the real plan is anything other than a desperate attempt to increase turnout from young voters. Mitt Romney has attempted to mitigate the political fallout from the White House’s claim that Republican leadership would cost students an extra $1,000 on their student loans by calling for the same misguidedly low interest rates.
All of this is proof of nothing other than that short term thinking is a bipartisan affliction, but at least the Republicans won’t raise your taxes…