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How low loan rates hurt students

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AP FILE PHOTO

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Updated: July 3, 2012 10:38AM



Education Secretary Arne Duncan says student loans don’t push up tuition, but of course, they do, much like housing prices were pushed up by banks giving loans to people who could not afford the mortgages.

Does anyone in Washington remember how that turned out?

Probably not. Washington encouraged the practice, which walloped our economy. But now it’s time for another goof and more misery.

The latest piece of craziness, promoted by President Barack Obama and seconded by Republican presidential candidate Mitt Romney, is to keep student loans at 3.4 percent instead of letting them go up to 6.8 percent after June, as a law calls for. That works out to be a taxpayer gift, and people love taxpayer gifts, so many students are cheering.

They shouldn’t be. If Obama and Romney had agreed on a deal making sure college students got a regular kick in the rear, it would not be nearly as painful as this will be for some. Tuition does go up as easy loans proliferate. Let me explain why.

Like any self-interested party, colleges and universities are ordinarily going to charge what the market will bear. A chief source of their funding these days is student loans. Keeping interest rates low helps keep the loans proliferating. That means tuition can go up, with students still arriving in numbers that would not be possible for many of them if the government were not involved. If it were just up to banks, without the government guaranteeing loan repayment, interest would be much higher than the 6.8 percent rate and given only to the least risky applicants.

Tuitions increase at roughly twice the inflation rate, according to calculations from the College Board and other groups, and have risen at a far more rapid rate than the salaries paid by the jobs college graduates ordinarily obtain. Thirty-seven million people are now student loan debtors who together owe something like $1 trillion, more than is owed on the nation’s credit cards. The Project on Student Debt reported that two-thirds of college seniors graduating in 2010 owed an average of $25,250, while others will owe many times that much, which brings us to other ways the loans spell trouble.

They haunt students like a mustache-twirling villain, following them around as they start their careers, begin families, invest in cars and search out that first house. Sometimes, the loans are so high and the jobs pay so little that graduates can barely pay them — or cannot foot the bill and must default — and the burden can weigh on their lives for decades.

Oh, well, there are others who can help them out: all those blue-collar workers who make a lot less but still get taxed to help fund this welfare program for those better off than they are. Did Romney and Obama think of that? And how do they like Senate Majority Leader Harry Reid’s way of finding the billions needed to make up the reduction of interest to 3.4 percent? He wants to raise taxes on some small businesses, which will be less likely to hire more people. That’s one thing that can happen when you pass higher business taxes. An “Obamacare” tax on firms making medical devices has caused several of them to delay expansion, meaning fewer jobs.

Though Washington insists on running our lives, you sometimes think legislators could not wind a toy meant for 6-year-olds.

Jay Ambrose is the former Washington director of editorial policy for Scripps Howard newspapers.



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