Skip to main content
Part of complete coverage from

Don't extend low interest rates on student loans

By William J. Bennett, CNN Contributor
May 3, 2012 -- Updated 1619 GMT (0019 HKT)
Occupy Wall Street rallies against education costs. William Bennett: Colleges raise prices despite record federal subsidies.
Occupy Wall Street rallies against education costs. William Bennett: Colleges raise prices despite record federal subsidies.
STORY HIGHLIGHTS
  • William Bennett: Lowering interest on student loans doesn't bring down college costs
  • Bennett: The issue has become the newest political cudgel
  • He asks: How does President Obama plan to pay for the $6 billion subsidy?
  • Bennett: Government needs to stop subsidizing low interest rates

Editor's note: William J. Bennett, a CNN contributor, is the author of "The Book of Man: Readings on the Path to Manhood." He was U.S. secretary of education from 1985 to 1988 and director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- The threat of increasing loan rates on future college students has become the newest political cudgel. It shouldn't be. Lowering interest rates on subsidized student loans does little to address the real problems of higher education: rising tuition costs and diminishing returns.

First, let's remember how we got here. After taking back control of Congress in 2007, then-Speaker Nancy Pelosi passed legislation that temporarily lowered the interest rates on the federally subsidized Stafford Loans from 6.8% to 3.4%. The extension would last until July 2012, when the rates double to 6.8%, partly as a budget trick to offset the original costs.

The Washington Post's editorial board called the whole ordeal "a campaign gimmick that Democrats cooked up to help them retake Congress in 2006. ... It's expensive, it's poorly targeted and it diverts attention and money from bigger problems facing federal support for higher education."

William Bennett
William Bennett

With the rates set to expire in the middle of this election season, Democrats knew full well they could use the threat of rising interest rates against Republicans. They've done exactly that.

"Today you've got Republicans who run Congress, and they're not saying whether or not they're going to stop your rates from doubling," President Obama said at the University of Colorado last week. Feeling the political heat, House Republicans as well as Mitt Romney agreed to extend the low interest rates. That's unfortunate.

Bank hounds dad for dead son's loan
Taking control of student loan debt
Boehner: No one wants loan rates to rise

Follow @CNNOpinion on Twitter and Facebook.com/cnnopinion

Republicans need not be on the defensive. How does the president plan to pay for the $6 billion subsidy? And how will it help control tuition costs? So far it hasn't. In 2011, costs at the average public university rose more than 5% for in-state students, or about $1,100. The average tuition at public universities rose more than 8%. By comparison, the rate of inflation was 3%.

Furthermore, only about a third of undergraduates have subsidized Stafford Loans and the interest rates for existing loans won't be touched. The average student with Stafford Loans graduates with about $13,000 in debt, much lower than the national average of $25,000. If the current rate doubles, they would pay about $2,600 more over 10 years. The effect of doubling the rates from 3.4% to 6.8% is minute when compared to the lifetime earnings of a person with a bachelor's degree (approximately $2.27 million) to a person with just a high school diploma ($1.3 million).

Perhaps most important, extending the low interest rates will not lower tuition costs for the students who need it most. The Stafford Loans largely fund the tuition of middle- and upper-class students on the backs of taxpayers. Pell Grants, the federal assistance to the poorest students, should be the real focus of discussion.

If Congress continues to subsidize low interest rates, they are handing the problem, and the mountain of debt, to future generations. In fact, they are passing on the debt to the very group of people they are trying to help: college students. With the federal government backing low interest rates, colleges have no incentive to lower tuition. Instead, the rates should be variable and tied to the market, not set by the government. The real problem here is the colleges and their unholy alliance with the federal government.

Here's what the president should be saying: The college system is largely failing students and taxpayers. Colleges continue to raise their prices despite record increases in federal subsidies. Between 1982 and 2007, college tuition and fees rose more than 400% (about four times the rate of inflation) Today, the average student loan debt exceeds $25,000 and total student loan debt exceeds $1 trillion. Less than 60% of college students finish college in six years or less. One out of every two college graduates today are unemployed or underemployed. The system overspends and underperforms.

It's unlikely that President Obama would ever say this. After all, he holds the system in his hands. Last year, in one of the most underreported political moves of his term, the Obama administration took over the student loan industry, cutting out private competition from banks. Taxpayers are now directly responsible for higher tuition costs and the resulting large amount of defaulted student loans.

In 2010, total student loan debt exceeded credit card debt. It may not be long before this bubble bursts, hurting the very students who need help the most.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of William J. Bennett.

ADVERTISEMENT
Part of complete coverage on
April 23, 2014 -- Updated 1641 GMT (0041 HKT)
Robert Hickey says most new housing development is high-end, catering to high-earners.
April 23, 2014 -- Updated 1317 GMT (2117 HKT)
Alexander Motyl says as Russian President Putin snarled at Ukraine, his foreign minister was signing a conciliatory accord with the West. Whatever the game, the accord is a major stand down by Russia
April 23, 2014 -- Updated 1229 GMT (2029 HKT)
Les Abend says at every turn, the stowaway teen defied the odds of discovery and survival. What pilot would have thought to look for a person in the wheel well?
April 24, 2014 -- Updated 1104 GMT (1904 HKT)
Q & A with artist Rachel Sussman on her new book of photographs, "The Oldest Living Things in the World."
April 22, 2014 -- Updated 1958 GMT (0358 HKT)
Martin Blaser says the overuse of antibiotics threatens to deplete our bodies of "good" microbes, leaving us vulnerable to an unstoppable plague--an "antibiotic winter"
April 22, 2014 -- Updated 1737 GMT (0137 HKT)
John Sutter asks: Is it possible to eat meat in modern-day America and consider yourself an environmentalist without being a hypocrite?
April 22, 2014 -- Updated 1538 GMT (2338 HKT)
Sally Kohn notes that Meb Keflezighi rightly was called an American after he won the Boston Marathon, but his status in the U.S. once was questioned
April 22, 2014 -- Updated 1256 GMT (2056 HKT)
Denis Hayes and Scott Denman say on this Earth Day, the dawn of the Solar Age is already upon us and the Atomic Age of nuclear power is in decline
April 21, 2014 -- Updated 2036 GMT (0436 HKT)
Retired Coast Guard officer James Loy says a ship captain bears huge responsibility.
April 21, 2014 -- Updated 1708 GMT (0108 HKT)
Peter Bergen says the latest strikes are part of an aggressive U.S. effort to target militants, including a bomb maker
April 21, 2014 -- Updated 1345 GMT (2145 HKT)
Cynthia Lummis and Peter Welch say 16 agencies carry out national intelligence, and their budgets are top secret. We need to know how they are spending our money.
April 21, 2014 -- Updated 1235 GMT (2035 HKT)
Julian Zelizer says President Obama knows more than anyone that he has much at stake in the midterm elections.
April 22, 2014 -- Updated 1255 GMT (2055 HKT)
Eric Sanderson says if you really want to strike a blow for the environment--and your health--this Earth Day, work to get cars out of cities and create transportation alternatives
April 21, 2014 -- Updated 1408 GMT (2208 HKT)
Bruce Barcott looks at the dramatic differences in marijuana laws in Colorado and Louisiana
April 18, 2014 -- Updated 2047 GMT (0447 HKT)
Jim Bell says NASA's latest discovery supports the notion that habitable worlds are probably common in the galaxy.
April 18, 2014 -- Updated 1817 GMT (0217 HKT)
Jay Parini says even the Gospels skip the actual Resurrection and are sketchy on the appearances that followed.
April 18, 2014 -- Updated 1752 GMT (0152 HKT)
Graham Allison says if an unchecked and emboldened Russia foments conflict in a nation like Latvia, a NATO member, the West would have to defend it.
April 18, 2014 -- Updated 1311 GMT (2111 HKT)
John Sutter: Bad news, guys -- the pangolin we adopted is missing.
April 21, 2014 -- Updated 1825 GMT (0225 HKT)
Ben Wildavsky says we need a better way to determine whether colleges are turning out graduates with superior education and abilities.
April 18, 2014 -- Updated 1026 GMT (1826 HKT)
Charles Maclin, program manager working on the search and recovery of Malaysia Flight 370, explains how it works.
April 18, 2014 -- Updated 1250 GMT (2050 HKT)
Jill Koyama says Michael Bloomberg is right to tackle gun violence, but we need to go beyond piecemeal state legislation.
April 17, 2014 -- Updated 1845 GMT (0245 HKT)
Michael Bloomberg and Shannon Watts say Americans are ready for sensible gun laws, but politicians are cowed by the NRA. Everytown for Gun Safety will prove the NRA is not that powerful.
ADVERTISEMENT