Congress Still Can’t Fix Student Loan Interest Rates

The interest rates on federally subsidized student loans will stay at 6.8 percent, which they rose to (from 3.4 percent) on July 1 when Congress failed to prevent the automatic rate hike.

Congress tried again today, and failed again. According to a piece at the Huffington Post:

A Senate vote to restore low interest rates temporarily on some new federal student loans failed to advance Wednesday, increasing the odds that college students will rack up additional debt due to Washington inaction.

Wednesday’s vote was one of a handful of recent votes that likely has disappointed students and their families. Democrats and Republicans have spent weeks trying to advance separate proposals either to restore last year’s 3.4 percent rate with a promise to overhaul the entire federal student loan program in coming months, or to scrap key elements of the current scheme immediately in favor of a program that ties student interest rates to the U.S. government’s cost to borrow.

This doesn’t mean any students will actually pay more. Congress will no doubt try again on this one, and apply the lower retroactively once it can finally come to an agreement.

This underscores the real problem with the program however. “We will not give up on this issue,” said Sen. Tom Udall (D-N.M.). The White House indicated that it “strongly supports” the measure introduced by Senate Democrats.

The Huff Post article emphasizes that the White House, Congressional Democrats, and the GOP are all at fault for allowing the rate to increase in this round. That’s technically true, but the real policy problem is that the interest rate on subsidized student loans should depends on Congress at all. This fight is an incredible waste of time. It doesn’t make any sense, either for education or the economy, for college students’ bills to depend annually on the competence of a divided legislative body.

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer