End the profiteering

Congress must lower the interest on federal loans

How much is a college education worth?

That’s what many University of California and California State University students are asking themselves as they take on an unprecedented level of debt just to get a bachelor’s degree.

Tuition has risen so astronomically over the past decade at the CSU due to declining state support (see Cover feature, “Diploma and the debt,” by Katherine Green, page 18) that undergraduates are taking out an average of more than $16,000 in loans. That’s modest compared to the Project on Student Debt’s estimate that two-thirds of college seniors nationwide had an average loan debt of $26,600 in 2011.

Meanwhile, the federal government stands to make more than $50 billion in profit off student loans this fiscal year, according to the Congressional Budget Office. Critics rightfully point out that’s more money than Apple ($41.7 billion) made last year.

The interest rate on Stafford loans—the most popular government loan for students—was set to double this month to 6.8 percent. That didn’t happen, though it did go up to 3.86 percent.

Sen. Elizabeth Warren (D-Mass.) has proposed lowering the rate on subsidized loans to 0.75 percent through her so-called Student Loan Fairness Act. That’s the same discount rate given to banks. Warren has lambasted Congress—which sets the interest rate—for offering large financial institutions such a low rate while saddling students with an overwhelming burden.

Doing so, as she points out, is bad business. Moreover, it’s morally wrong, Warren has said.

We agree. Keep in mind that Stafford loans are there for students whose families cannot afford to pay the ever-rising tuition and campus-based fees. The current interest rate further marginalizes these students, which increasingly includes many from the middle class. Congress must act to ensure that all students have the financial support needed to attend college and enter the real world as contributing members of society.