Dems exploit student loan interest rate hike and avoid reality of what it is really about

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The Democratic Congressional Campaign Committee issued a web video targeting Rep. Steve Southerland and his Republican colleagues for how they believe their “dysfunction will hurt students and middle class families” following the doubling of certain student loan interest rates on Monday.

The video is keyed up with students lamenting their impending debt and is high on the sympathy factor; but it is clear that the DCCC didn’t tell these volunteers what the measure actually means, who will be affected, what the alternatives were, or the role of their own party in failing to reach a viable compromise.

“This is not a disaster, despite what you’ve heard from Washington,” writes Stephen Stromberg, who has written for Salon, the Economist, and now the Washington Post.

And in the case of this video, only more misinformation ensues.

One current student states that “if the bill doesn’t pass I’m going to be in really bad shape,” and another says, “I would need to get another full-time job to pay for classes.”

But no current loan will be affected by these changes — and regardless, the impacts wouldn’t be felt while any student is still enrolled.  Further, the rate hike only pertains to one specific class of loans, subsidized Stafford loans, and applies only to loans taken out in the future.

To the student who stated in the video that if rates don’t stay put, “I would have to question whether I could even stay in school,” it is clear that no context was offered, nor an explanation of what the difference between 3.4 and 6.8 percent means in the long-term.

“Even at 6.8 percent, students are getting a great deal,” writes Stromberg. “They are risky borrowers, and no private lender would ever front them money at anything like the rates the government is offering — not to mention the terms.”

The terms of borrowing determine how much student borrowers end up paying after graduation, at least as much as the interest rate does.  For example, repayment options consider various income-based factors in setting payments and in balance forgiveness. This is where the action is, and where attention should be placed, Stromberg believes — targeting financial relief at graduates who need it rather than offering lower rates up front to all students, many of whom go on to make “loads of money after school.”

Both Republicans and Democrats have agreed, broadly, that the best way to handle student loan interest rates is to link it to the rate at which government borrows so that student rates would float with everyone else’s and reflect economic reality. To Stromberg, this would be a significant improvement over having rates fixed by Congress “based on whatever lawmakers feel like”.

Despite general agreement, the parties haven’t settled on specifics, and some Democrats such as Sen. Elizabeth Warren insist that Congress continue to set interest rates by decree.

Did the DCCC share that with the student who stated in their video how “disheartened” he was that “Congressman John Boehner and some of the other Republicans are really not budging”?

To Boehner, “the divisions among the president and his own party are directly responsible for the current impasse.”

None of this seems to matter, though, because students in this video are being told they’re entitled to something that other borrowers would never be.  And some feel that they deserve from their leaders a certain fixed interest rate because they “work hard to get you elected.”

The students in the DCCC video bemoan that “we need a long term plan” and that “the Republican plan is not looking to the future.”

But considering the scope of options and the larger context of the national debt and priorities in spending, the Republicans in this case seem to be sacrificing their popularity for the very thing these students claim to need: a plan for the future.

None of the students in this video, nor any other in the nation, will need to take “another job to pay for books” as a result of this interest rate change, as the DCCC would have us believe.

But expect to hear more like this in the coming months as Gwen Graham sets her eyes on Southerland’s seat — a district that includes Florida State, Florida A&M, Tallahassee Community College, and Gulf Coast Community College.

Karen Cyphers, PhD, is a public policy consultant, researcher, and mother to three daughters.