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
December 20, 2014 -- Updated 0242 GMT (1042 HKT)
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
December 20, 2014 -- Updated 0112 GMT (0912 HKT)
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
December 19, 2014 -- Updated 1709 GMT (0109 HKT)
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
December 18, 2014 -- Updated 2345 GMT (0745 HKT)
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
December 19, 2014 -- Updated 2134 GMT (0534 HKT)
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
December 18, 2014 -- Updated 1951 GMT (0351 HKT)
Jeff Yang says the film industry's surrender will have lasting implications.
December 18, 2014 -- Updated 2113 GMT (0513 HKT)
Newt Gingrich: No one should underestimate the historic importance of the collapse of American defenses in the Sony Pictures attack.
December 10, 2014 -- Updated 1255 GMT (2055 HKT)
Dean Obeidallah asks how the genuine Stephen Colbert will do, compared to "Stephen Colbert"
December 18, 2014 -- Updated 1734 GMT (0134 HKT)
Some GOP politicians want drug tests for welfare recipients; Eric Liu says bailed-out execs should get equal treatment
December 18, 2014 -- Updated 1342 GMT (2142 HKT)
Louis Perez: Obama introduced a long-absent element of lucidity into U.S. policy on Cuba.
December 16, 2014 -- Updated 1740 GMT (0140 HKT)
The slaughter of more than 130 children by the Pakistani Taliban may prove as pivotal to Pakistan's security policy as the 9/11 attacks were for the U.S., says Peter Bergen.
December 17, 2014 -- Updated 1600 GMT (0000 HKT)
The Internet is an online extension of our own neighborhoods. It's time for us to take their protection just as seriously, says Arun Vishwanath.
December 16, 2014 -- Updated 2154 GMT (0554 HKT)
Gayle Lemmon says we must speak out for the right of children to education -- and peace
December 17, 2014 -- Updated 1023 GMT (1823 HKT)
Russia's economic woes just seem to be getting worse. How will President Vladimir Putin respond? Frida Ghitis gives her take.
December 17, 2014 -- Updated 0639 GMT (1439 HKT)
Australia has generally seen itself as detached from the threat of terrorism. The hostage incident this week may change that, writes Max Barry.
December 12, 2014 -- Updated 2020 GMT (0420 HKT)
Thomas Maier says the trove of letters the Kennedy family has tried to guard from public view gives insight into the Kennedy legacy and the history of era.
December 15, 2014 -- Updated 1456 GMT (2256 HKT)
Will Congress reform the CIA? It's probably best not to expect much from Washington. This is not the 1970s, and the chances for substantive reform are not good.
December 15, 2014 -- Updated 2101 GMT (0501 HKT)
From superstorms to droughts, not a week goes by without a major disruption somewhere in the U.S. But with the right planning, natural disasters don't have to be devastating.
December 15, 2014 -- Updated 1453 GMT (2253 HKT)
Would you rather be sexy or smart? Carol Costello says she hates this dumb question.
December 14, 2014 -- Updated 2253 GMT (0653 HKT)
A story about Pope Francis allegedly saying animals can go to heaven went viral late last week. The problem is that it wasn't true. Heidi Schlumpf looks at the discussion.
December 14, 2014 -- Updated 1550 GMT (2350 HKT)
Democratic leaders should wake up to the reality that the party's path to electoral power runs through the streets, where part of the party's base has been marching for months, says Errol Louis
December 13, 2014 -- Updated 2123 GMT (0523 HKT)
David Gergen: John Brennan deserves a national salute for his efforts to put the report about the CIA in perspective
December 12, 2014 -- Updated 1426 GMT (2226 HKT)
Anwar Sanders says that in some ways, cops and protesters are on the same side
December 11, 2014 -- Updated 1439 GMT (2239 HKT)
A view by Samir Naji, a Yemeni who was accused of serving in Osama bin Laden's security detail and imprisoned for nearly 13 years without charge in Guantanamo Bay
December 14, 2014 -- Updated 1738 GMT (0138 HKT)
S.E. Cupp asks: How much reality do you really want in your escapist TV fare?
ADVERTISEMENT