Sunday, July 7, 2013

Why Student Loan Rates Are (and Should Be) Political

At the beginning of this month, interest rates on federal student loans doubled.  As with so many other “crises” of the last five years, this one was precipitated by the inability of our political leadership to agree on a ceiling for interest rates that lenders can charge (with some of them arguing against setting any ceiling at all), and the inadequacy of our political institutions to provide for such agreement. 

Mother Jones has put together some excellent graphics which demonstrate just how enormous student loan debt has become over the past ten years, the rise in the number of borrowers, the increase in the amount borrowed, and the growth in student loan debt relative to other typical forms of debt.  The magazine also outlines some of the proposed “fixes”, including those proposed by the President, by House Republicans, and by Republicans and Democrats in the Senate. 

In a separate set of graphics, Mother Jones reports that the average annual price of a four-year college (including tuition, room and board, and fees) has risen from $8,756 in 1980 to $21,657 in 2010 (a number which falls considerably short of the cost of attending a public institution like the University of California). 

This rise has dramatically outstripped inflation, suggesting that the nation as a whole might be suffering from the ills which afflict California: a resurgent, fundamentalist right wing party which has been de-funding public institutions, forcing the burden onto students and a high-flying caste of university administrators who believe that a hefty price-tag will inflate the “value” of the “product” they provide.  Appallingly—though unsurprisingly—this debt piles up on those least able to afford or absorb it, compounding the inequality which already afflicts our society.

There are readily identifiable ideological fissures in the approaches to the impending loan crisis.  Laughably, Republicans are endorsing a “market” approach.  Well, it would be laughable were they not serious.  Their plan calls for an immediate increase in the rates of loans, and then mandates that loans be tied to fluctuations in the market, not only from year to year as new generations of students take out loans, but within the lifespan of an individual loan.  As Mother Jones points out, “that means you could take out a loan at a super-low rate, and end up paying a 8.5 percent a few years down the line”.  Republicans also want to target students indiscriminately, making no allowance for the greater financial need of some students.

The hypocrisy of Republicans knows no bounds.  A Kansan representative, Lynn Jenkins, whined that “for too long, politicians have been in charge of setting these rates, and we keep coming back to cliffs and deadlines like this one...Paying for college is difficult enough without all this uncertainty”. 

I would be the last person to arbitrarily decide whether Jenkins is an idiot or simply malicious.  But to pretend that markets are somehow neutral or apolitical, and to suggest less than a decade after a serious financial crisis that markets rather than regulated frameworks provide “certainty” is either disingenuous in the extreme or extremely stupid.  As the intense debate over the loans illustrates, it is an intensely political process, as it should be.

After all, we’re deciding whether the funding of students’ education should be a sector open to exploitative profiteers, in which lending institutions should be permitted to gouge students and set rates according to a fluctuating market which lenders have the ability to manipulate.  What could be a more political decision than that?  And if a political decision has to be made why, as Jenkins and her sociopathic, fundamentalist party suggest, should it be made by financial institutions rather than elected representatives.  [The answer, of course, is that they ascribe to the now legally-inscribed belief that corporations are people (who not coincidentally give lots and lots of money to their political campaigns), with more expansive rights than actual citizens.]

The Republicans’ market mantra suggests either that they have learned very little from the financial crash, or that they think the public are stupid enough that they can once again assist lenders in creating market conditions geared towards engineering a short-term bubble—with profits all around for those in the business of exploiting students in this case, homeowners in the other—which will likely be followed by a spectacular implosion.  They have reason to believe, given the refusal of the Justice Department to pursue financial criminals, that when such a crash occurs they will walk away intact, or perhaps even receive federal support. 

Republican lobbying demonstrates just how fictitious the belief in “free markets” is.  If they were really “free”, of course, they wouldn’t require lobbying, government intervention, or what amount to (in Elizabeth Warren’s words) subsidies for “highly-profitable private student lenders”.

The President’s proposal also increases loan rates considerably, but in a more targeted fashion, such that it will hurt students according to financial need.  Rates at the beginning of each year are, however, subject to market fluctuations, although once students have borrowed, they will pay the same rate over however many years it takes for them to pay off the loan.

Unsurprisingly, it has been left to Senator Elizabeth Warren of Massachusetts, progressives’ best hope in the Senate, and indeed for the presidency in 2016, to articulate a fairer and more reasonable alternative.  Hers would be a temporary measure, but could serve as a good model moving forward, as it would set the rates for student loans to the same level as the rate paid by banks when they borrow from the Federal Reserve.  It seems very little to ask that hard-pressed students get as good a deal as massive, money-making financial institutions, particularly when society as a whole reaps such benefits from a educated, skilled, and civically-inclined public. 

The Huffington Post cited a poll which suggests that as many as 56 percent of Republicans back Warren’s plans.  This number demonstrates the yawning chasm between many grassroots Republicans who are uncomfortable with the rampant capitalism that exploits the public for the profit of corporate and financial institutions on the one hand, and that party’s leadership, which has been bought and paid for by those same interests. 

Of course, the need for such massive loans is driven in part by the soaring cost of a university or college education, a cost which has become all-but-prohibitive for many working- and middle-class students, and which creates a serious barrier for non-traditional attendees.  If you haven’t seen, Oregon’s legislature is working on a creative measure which would make college attendance free up front, and require students to pay back into the system according to how well they do after graduation. 

2 comments:

  1. I think a lot of taxpayers would prefer federal student loan rates to be tied to the 10-year Treasury note rather than at the Federal Reserve's discount window rate, currently 0.75%. How about instead of guaranteeing that subsidized Stafford loans remain at a fixed 3.4%, we try to increase the UC's ratio of ladder rank faculty to senior managers/administrators? The Federal Credit Reform Act of 1990 requires a deliberate under-counting of the cost of defaults, which means the cost of subsidized Stafford loans might be higher than politicians want to admit.

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  2. Such a nice blog.... Thanks for sharing...
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