College loans

Low-interest rates should be shared with students

It has been well reported that past and present college students in this country are responsible for a significant amount of unpaid tuition, rivaling what Americans owe to credit-card companies. There are plenty of good reasons for that predicament: increases in public and private college and university tuition rates have exceeded the rate of inflation during the past decade, while in the case of public institutions, the level of state support has declined. Specific reasons differ among the states, but the recession, with its reduced tax revenue, has affected them all in recent years.

On the fringes, some for-profit colleges have been guilty of over-promising that its degree will lead to employment. And, in some cases, at the entry level for a post-high school education students have committed to community college classes without having a practical plan to complete them, or have been sidetracked. The gap between available resources and costs may be particularly great for community-college students.

Up to this moment, students with government subsidized loans have been paying a 3.4 percent interest rate. That is changing. Without congressional action, it will double to 6.8 percent.

Democrats generally want to continue the 3.4 percent rate, or to even reduce it. They point out plenty of lending takes place at 3.4 percent or less. Large corporations and high-net-worth individuals can find money at or below that rate today; banks receive far less than that – less than 1 percent – from other banks for their short-term unneeded funds.

If a college education leads to a personally more rewarding life and adds to the country’s economic strength (the unemployment rate for college graduates is half the overall rate), shouldn’t what it takes to fund a college education be put within easy reach?

The contrary view is equally large. Tuition money available at 3.4 percent has encouraged colleges and universities to raise their tuition rates to higher levels than they would have otherwise, and it has encouraged individuals who likely will not need to apply a college education in the workplace to spend their time and money studying for one.

They point to low graduation rates from four-year public colleges even after six years, particularly, and to the very low graduation rates for community-college students. (Easy responses to those points are that students are working during those two, or more, additional years, and that community-college students may need only a few specific courses to improve their job prospects, not a diploma.)

The cost of post-high school education in all its forms is troubling. Encouragingly, there are some signs that market forces are having an effect. In some cases, out-of-state tuition rates, always high compared to in-state, have reached a point where students and parents are saying “no thanks, we’ll stay local.” In a few states, legislatures have threatened to cap rates to get the attention of administrators.

Private colleges, which can negotiate tuition rates on almost a case-by-case basis which tax supported colleges cannot, in turn are being more generous in their discounts in order to reach their enrollment goals.

Saddling students with a high interest rate on their tuition debt is not the way to force colleges to operate with the goal of reducing cost increases, nor to discourage students from exploring a college education. Increased education attainment levels, whether or not accompanied by a diploma, are too important to an individual and to the country. Continue to peg the interest rate at no more than 3.4 percent for a length of time, then review it. This economic environment is one of low interest rates; students should not be treated differently.