Five years ago, in a piece of cheap political theater, Congress wrote an additional sweetener for federally subsidized Stafford loans into the College Cost Reduction and Access Act. Beyond offering college loans at a guaranteed rate of 6.8%, Congress temporarily dropped the undergraduate rate as low as 3.4 .
Now that temporary dip is set to expire, with undergraduate Stafford loans reverting to the standard 6.8% rate. The impact? Not much. U.S. PIRG, the big “student advocacy” lobbying outfit, calculates the change would cost the average new borrower $2,800 over a 10-year repayment term. That’s about $25 a month. Former CBO Director Douglas Holtz-Eakin has pegged the impact at $7 a month.
The hit to the federal debt is projected at $30 billion over five years.
How is Washington dealing with asking college borrowers to give up their extra subsidy of 80 cents a day? Not impressively. The same President Obama who once pledged we were done “kicking the can” on tough decisions is pandering for the youth vote (on Jimmy Fallon, no less) by insisting we extend the largesse. Meanwhile, in a discouraging development, the same Mitt Romney who insists we have to slash spending and reverse course on Obama’s “government-centered society” quickly caved and joined Obama’s call to extend the break.
Read more at AEI’s Enterprise blog.