Students who borrow to pay for college got some good news last week when a bipartisan group of senators, including Maine independent Angus King, passed a bill that will cut the interest rate on student loans nearly in half.
The deal promises to end what has recently become an annual exercise in brinkmanship, creating unnecessary uncertainty for students and their families. Future student loan interest rates will be linked to Treasury bill rates and will rise and fall automatically, as long as they don’t exceed a 8.5 percent cap.
If the bill passes the House as expected, it will be signed by the president in time for the fall semester.
That’s the good news. The bad news is that this addresses only a small part of the problem.
College costs rise annually much faster than incomes or inflation. At the same time, cash-strapped states are cutting back funding for higher education.
As a college degree becomes more important in a student’s economic future, the cost has shifted to students themselves who pay for their educations with loans.
Students who graduate with hefty loans are less likely to get married, buy cars or houses, or choose low-paying jobs in public service or nonprofits. So the problem is not really about the interest rates, it’s the amount that has to be borrowed that creates a burden.
Making loans more available helps people pay who would never be able to pay for their education otherwise, but it does nothing to slow down the escalating costs that put these same students in such a difficult situation when they graduate — or, even worse, if they don’t graduate and acquire the debt but not the benefit of a degree.
Controlling higher education costs is a multifaceted problem as complicated as controlling health care costs, and just as important to our economy.
Colleges and universities have not been able to take advantage of the productivity gains that come from the use of technology that have lowered costs and driven profits in other industries. The labor-intensive nature of education means that institutions cannot cut their ways to providing an affordable education that is also meaningful.
• Colleges and universities should be held accountable for the federal money they receive. Schools should pay a penalty if they accept unqualified candidates who run up debt and flunk out without graduating.
• Qualified students should be able to rely on aid that they don’t have to pay back. This is the norm throughout the world, and it makes no sense to saddle promising young people with debt at the start of their careers here.
• Most aid should be needs-based. Scarce scholarship money should be used to give more people an opportunity, not just be awarded as a mark of distinction.
• More public investment is needed to assure enough slots in community colleges, the most cost-effective way for workers to acquire the skills they need.
So it is good news that the issue of interest rates for student loans may be off the table for a while, and better news that the solution was found through bipartisan cooperation. But the real work hasn’t been done yet, and it will require the kind of cooperation and creative thinking that has been missing in Washington.