On Monday, the interest rate on roughly one out of every three new student loans will double, increasing from 3.4 percent to 6.8 percent. A year ago, Congress put together a temporary fix that cost taxpayers about $6 billion, but saved students approximately $9.00 per month.
Two separate plans have been unveiled in the Senate: one plan would provide another one year patch, while the other would tie interest rates on loans to the 10-year Treasury note, adding percentage points depending on the loan type. It appears all but certain that that 6.8% rate will go into effect on Monday.
AEI resident scholar and director of the Center on Higher Education Policy Andrew P. Kelly notes that while policymakers have spent endless hours debating interest rates that will only affect 1/3 of borrowers, there are other challenges in higher education that merit serious attention from policymakers: rising tuition prices, stagnant completion rates, and a growing army of students with debt:
"Fixing the student loan interest rate won't do much of anything to solve [those thorny problems], yet it has sucked up all of the policymaking energy."
Read Andrew Kelly's recent piece, "President Obama punts away from free markets on student loan reform."
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