The current student loan rate was established in 2007, after Democrats promised to halve rates upon gaining control of Congress. However, the new rate required exorbitant funding, and policymakers decided that after five years the rate would revert back to 6.8 percent. As the current Presidential election heats up, both parties seek to win the college demographic by extending lower loan rates.
Because higher education is valuable for the individual and for society, all should have the opportunity to obtain a college degree. However, many Americans cannot afford the costs, and others fail to see the relative value to its cost. Increasing the student loan rate will exacerbate both of these issues. Even now, without the increase in the interest rates, students are graduating with substantial debt, and many find themselves unemployed or underpaid in an uncertain job market, making higher education seem less valuable for success and employment.
The problem is that funding remains a large issue. According to the Congressional Budget Office, extending the 3.4 percent rate for a single year would cost about $6 billion. This is an extreme price to pay for a poorly planned initiative. The 3.4 percent rate itself is rather arbitrary, an artifact from a bygone campaign. Federal loans are available to many students, without particularly stringent measures for determining relative need. While lower rates would certainly enable more students to pay for college, other programs could accomplish the same goal more effectively.
Pell Grants in particular offer a promising solution. These subsidies are awarded only to the poorest students, and unlike loans, do not have to be repaid. By helping only those in most dire need of financial assistance, Washington can launch a more focused effort against high education costs. President Obama took a step in the right direction by enlarging Pell Grants, but the program faces an $8 billion shortfall in 2014.
Ideally, the government would be able to fund every program aimed at increasing college access. However, the federal budget is overstretched, and care must be taken to enact only those programs that show the most promise. Republicans and Democrats alike selfishly seek to win votes by extending lower loan rates, whereas they should be exploring more effective solutions and figuring out how to pay for an endangered Pell Grant program. For an issue as important as higher education, Washington needs to put aside election-centered political squabbling and prioritize the needs of the American student.