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Congress Plays Politics with Your Student Loans

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Have federally subsidized student loan debt? Then you might want to pay attention to what’s going on in Congress. We warn you, though: as usual, it’s not pretty.

Thanks to a law passed in 2007, interest rates on subsidized Stafford loans are set to double from 3.4 percent to 6.8 percent on July 1 unless Congress passes a measure to prevent it. President Obama, as you’d expect in an election year, speedily asked legislators to please get on that. And get on that they did, though in the usual partisan manner, with Democrats and Republicans coming up with two competing bills. Both keep the interest rates at their current level for a year but find very different ways to pay for the program.

The Democratic approach? Raise payroll taxes on some wealthy individuals who use a loophole to pay less by classifying some of their income as dividends. “What, a tax increase!?” cried the Republicans, who predictably, went ballistic. They instead want to fund the rate extension by eliminating a fund for preventive health care that was part of President Obama’s health care reform bill.

The House passed a version of the bill, including the Republican’s funding proposal. But on May 24, the Senate shot down both versions of the bill, passing – you guessed it — nothing.

The result? The continued threat of a rate rise for students, and a whole lot of unappealing political posturing. (Another “controversial” measure that failed to pass: The Violence Against Women Act.)

The White House says the interest rate will cost borrowers an average of $1,000 a year. But with pundits of all stripes wringing their hands about the magnitude of young people’s debt load (if you didn’t see The New York Times recent package of the magnitude of the crisis, it’s worth checking out) and the job market for grads still pretty grim, it seems a bit rich to ask this group to pay any more at all.

Especially when we’re repeatedly told that any cuts to programs that are important to seniors are a political no-go zone. As Stephen Marche’s explained in his provocatively titled Esquire article “The War Against Youth:”

The political imperative is to preserve the economic cloak of unreality that the Boomers have wrapped themselves in.

Democrats may not be actively hostile to the interests of young voters, but they are too scared and weak to speak up for them. So when the Boomers and swing voters scream for fiscal discipline and the hard decisions have to be made, youth is collateral damage. Medicare and Social Security were mostly untouched in Obama’s 2012 budget. But to show he was really serious about belt tightening, relatively cheap programs that help young people like the Adolescent Family Life Program and the Career Pathways Innovation Fund were killed.

Why? Older people vote en masse. Maybe it’s time for young people to start doing that too.

London-based Jessica Stillman blogs about generational issues and trends in the workforce for Inc.com and GigaOM.

Brazen powers real-time, online events for leading organizations around the world. Our lifestyle and career blog, Brazen Life, offers fun and edgy ideas for ambitious professionals navigating the changing world of work.

  • MJ

    Give me a break. The only reason the rates are artificially at that low 3.4% is because congress passed that law in 2007 (the democrats owned both houses then, remember?) and deliberately set it to expire during this election year so that they could play politics with it. The fact of the matter is that the rate is only coming up to where it should have been in the first place. The lower rate would only save $38/mo for each student, but will cost the federal government, and taxpayers, $6,000,000,000.00. That’s $6 BILLION more dollars for people that have already gotten subsidized loans. Shouldn’t the education and a better chance a earning more money be enough? Do we really need to give students even more money to do something that is going to benefit them financially anyway?

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  • dinesh

    Great post. This is very informative article. The only reason the rates are artificially at that low 3.4% is because congress passed that law in 2007.and deliberately set it to expire during this election year so that they could play politics with it.