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Monday, Jul 28, 2014
Commentary

When $50 billion isn't enough


Published:

Now becoming a perennial obstacle, student loan interest rates on federally subsidized loans are yet again set to double on July 1. Unless Congress and President Barack Obama can reach an agreement, federal Stafford loan interest will rise from 3.4 percent to 6.8 percent.

The House, the Senate and the White House have devised plans for a long-term solution, but all of the plans are similar, portraying subsidized student loans as an exorbitant government expense. Only President Obama's plan calls on reducing the subsidized Stafford loan to 3.1 percent from 3.4 percent. House Republicans are calling for increases in subsidized Stafford loans while seeking decreases in unsubsidized and Parent PLUS loans. Senate Democrats want things left as they are now.

However, the real joke is on us. That's because the government is raking in more than $50 billion from the wallets of America's student borrowers, according to a projection from the Congressional Budget Office. In business a loan is an asset, not an expense, and interest payments are income and the principle is restored.

The student loan program costs Washington very little, if anything, and in reality has become an incredible government income generator with big profits. The federal government borrows money at near zero percent interest and offers it to students at as much as 7.9 percent for parent plus and other unsubsidized loans. Parent PLUS loans currently have a profit rate of 33.64 percent, according to the White House budget.

Most other governmental revenue generators go by a different name: taxes. It is highly unlikely that a $50 billion tax placed only on prospective college students would be received with anything less than torches and pitchforks.

Federal student loans were established to provide ample opportunity to prospective college students to further their education, even if they were not otherwise able to afford it while enrolled. And study after study continues to prove that the value of a college degree over the lifetime of earnings is still one of the best returns on investment a person can make. It is unfortunate that elected officials are putting the burden squarely on the middle class and poorest of families.

Federal student loans continue to be a win/win for those who receive them, and those who distribute them. According to a 2010 report from the Georgetown University Center on Education and the Workforce, completing a bachelor's degree adds an additional $1.1 million in lifetime income compared to a high school diploma. Even those who end their higher education careers without a degree stand to benefit to the tune of an estimated $473,000. That also means higher federal income tax payments while the federal government reaps big profits from the interest payments.

Although we continue to hear isolated stories about students struggling with insurmountable debt, the overwhelming majority of those who borrow money pay it back, and are able to do so because of the additional compensation their degree affords them.

Even more ludicrous, several prominent lawmakers have taken it upon themselves to blame colleges and universities for student loan debt, while they surreptitiously rake in the billions.

It is hard to argue Washington does not have a serious spending problem, but suggesting that federal student loan interest rates are contributing to the deficit is just plain ignorant at best, and deceitful at worst.

There is a lot of lip service from our elected officials and very little action.

Congress needs to find a way to work together to ensure that subsidized Stafford loans don't double on July 1. Our workforce, economy, and the livelihood of millions Americans depends on it. After all, when is $50 billion not enough?

Dr. Arthur F. Kirk Jr. is president of Saint Leo University in Pasco County.

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