Skip to main content
Part of complete coverage from

Don't extend low interest rates on student loans

By William J. Bennett, CNN Contributor
updated 12:19 PM EDT, Thu May 3, 2012
Occupy Wall Street rallies against education costs. William Bennett: Colleges raise prices despite record federal subsidies.
Occupy Wall Street rallies against education costs. William Bennett: Colleges raise prices despite record federal subsidies.
STORY HIGHLIGHTS
  • William Bennett: Lowering interest on student loans doesn't bring down college costs
  • Bennett: The issue has become the newest political cudgel
  • He asks: How does President Obama plan to pay for the $6 billion subsidy?
  • Bennett: Government needs to stop subsidizing low interest rates

Editor's note: William J. Bennett, a CNN contributor, is the author of "The Book of Man: Readings on the Path to Manhood." He was U.S. secretary of education from 1985 to 1988 and director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- The threat of increasing loan rates on future college students has become the newest political cudgel. It shouldn't be. Lowering interest rates on subsidized student loans does little to address the real problems of higher education: rising tuition costs and diminishing returns.

First, let's remember how we got here. After taking back control of Congress in 2007, then-Speaker Nancy Pelosi passed legislation that temporarily lowered the interest rates on the federally subsidized Stafford Loans from 6.8% to 3.4%. The extension would last until July 2012, when the rates double to 6.8%, partly as a budget trick to offset the original costs.

The Washington Post's editorial board called the whole ordeal "a campaign gimmick that Democrats cooked up to help them retake Congress in 2006. ... It's expensive, it's poorly targeted and it diverts attention and money from bigger problems facing federal support for higher education."

William Bennett
William Bennett

With the rates set to expire in the middle of this election season, Democrats knew full well they could use the threat of rising interest rates against Republicans. They've done exactly that.

"Today you've got Republicans who run Congress, and they're not saying whether or not they're going to stop your rates from doubling," President Obama said at the University of Colorado last week. Feeling the political heat, House Republicans as well as Mitt Romney agreed to extend the low interest rates. That's unfortunate.

Bank hounds dad for dead son's loan
Taking control of student loan debt
Boehner: No one wants loan rates to rise

Follow @CNNOpinion on Twitter and Facebook.com/cnnopinion

Republicans need not be on the defensive. How does the president plan to pay for the $6 billion subsidy? And how will it help control tuition costs? So far it hasn't. In 2011, costs at the average public university rose more than 5% for in-state students, or about $1,100. The average tuition at public universities rose more than 8%. By comparison, the rate of inflation was 3%.

Furthermore, only about a third of undergraduates have subsidized Stafford Loans and the interest rates for existing loans won't be touched. The average student with Stafford Loans graduates with about $13,000 in debt, much lower than the national average of $25,000. If the current rate doubles, they would pay about $2,600 more over 10 years. The effect of doubling the rates from 3.4% to 6.8% is minute when compared to the lifetime earnings of a person with a bachelor's degree (approximately $2.27 million) to a person with just a high school diploma ($1.3 million).

Perhaps most important, extending the low interest rates will not lower tuition costs for the students who need it most. The Stafford Loans largely fund the tuition of middle- and upper-class students on the backs of taxpayers. Pell Grants, the federal assistance to the poorest students, should be the real focus of discussion.

If Congress continues to subsidize low interest rates, they are handing the problem, and the mountain of debt, to future generations. In fact, they are passing on the debt to the very group of people they are trying to help: college students. With the federal government backing low interest rates, colleges have no incentive to lower tuition. Instead, the rates should be variable and tied to the market, not set by the government. The real problem here is the colleges and their unholy alliance with the federal government.

Here's what the president should be saying: The college system is largely failing students and taxpayers. Colleges continue to raise their prices despite record increases in federal subsidies. Between 1982 and 2007, college tuition and fees rose more than 400% (about four times the rate of inflation) Today, the average student loan debt exceeds $25,000 and total student loan debt exceeds $1 trillion. Less than 60% of college students finish college in six years or less. One out of every two college graduates today are unemployed or underemployed. The system overspends and underperforms.

It's unlikely that President Obama would ever say this. After all, he holds the system in his hands. Last year, in one of the most underreported political moves of his term, the Obama administration took over the student loan industry, cutting out private competition from banks. Taxpayers are now directly responsible for higher tuition costs and the resulting large amount of defaulted student loans.

In 2010, total student loan debt exceeded credit card debt. It may not be long before this bubble bursts, hurting the very students who need help the most.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of William J. Bennett.

ADVERTISEMENT
Part of complete coverage on
updated 12:15 PM EDT, Sun July 27, 2014
Megan McCracken and Jennifer Moreno say it's unacceptable for states to experiment with new execution procedures without full disclosure
updated 1:28 PM EDT, Sat July 26, 2014
Jeff Yang says it's great to see the comics make an effort at diversifying the halls of justice
updated 11:55 AM EDT, Sat July 26, 2014
Rick Francona says the reported artillery firing from Russian territory is a sign Vladimir Putin has escalated the Ukraine battle
updated 2:22 PM EDT, Sun July 27, 2014
Paul Callan says the fact that appeals delay the death penalty doesn't make it an unconstitutional punishment, as one judge ruled
updated 6:25 PM EDT, Thu July 24, 2014
Pilot Robert Mark says it's been tough for the airline industry after the plane crashes in Ukraine and Taiwan.
updated 11:10 AM EDT, Fri July 25, 2014
Jennifer DeVoe laments efforts to end subsidies that allow working Americans to finally afford health insurance.
updated 11:33 AM EDT, Sat July 26, 2014
Ruti Teitel says assigning a costly and humiliating "collective guilt" to Germany after WWI would end up teaching the global community hard lessons about who to blame for war crimes
updated 8:45 AM EDT, Fri July 25, 2014
John Sutter responds to criticism of his column on the ethics of eating dog.
updated 9:02 AM EDT, Fri July 25, 2014
Frida Ghitis says it's tempting to ignore North Korea's antics as bluster but the cruel regime is dangerous.
updated 2:50 PM EDT, Fri July 25, 2014
To the question "Is Putin evil?" Alexander Motyl says he is evil enough for condemnation by people of good will.
updated 2:03 PM EDT, Thu July 24, 2014
Laurie Garrett: Poor governance, ignorance, hysteria worsen the Ebola epidemic in Sierra Leone, Guinea, Liberia.
updated 9:49 AM EDT, Thu July 24, 2014
Patrick Cronin and Kelley Sayler say the world is seeing nonstate groups such as Ukraine's rebels wielding more power to do harm than ever before
updated 6:05 PM EDT, Wed July 23, 2014
Ukraine ambassador Olexander Motsyk places blame for the MH17 tragedy squarely at the door of Russia
updated 7:42 AM EDT, Thu July 24, 2014
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
updated 2:53 PM EDT, Thu July 24, 2014
Les Abend says, with rockets flying over Tel Aviv and missiles shooting down MH17 over Ukraine, a commercial pilot's pre-flight checklist just got much more complicated
updated 9:17 AM EDT, Thu July 24, 2014
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
updated 12:37 PM EDT, Thu July 24, 2014
Gerard Jacobs says grieving families and nations need the comfort of traditional rituals to honor the remains of loved ones, particularly in a mass disaster
updated 10:13 AM EDT, Thu July 24, 2014
The idea is difficult to stomach, but John Sutter writes that eating dog is morally equivalent to eating pig, another intelligent animal. If Americans oppose it, they should question their own eating habits as well.
updated 12:30 PM EDT, Wed July 23, 2014
Bill van Esveld says under the laws of war, civilians who do not join in the fight are always to be protected. An International Criminal Court could rule on whether Israeli airstrikes and Hamas rocketing are war crimes.
updated 10:08 AM EDT, Wed July 23, 2014
Gordon Brown says the kidnapped Nigerian girls have been in captivity for 100 days, but the world has not forgotten them.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT