THE SENATE is set to consider on Wednesday the Keep Student Loans Affordable Act, in what could be the chamber’s only reaction to the recent doubling of a low student-loan interest rate. We are all for taming college costs. But lawmakers should reject this pathetic non-solution and put their effort instead into finalizing a compromise plan that is well within their reach.
The Senate vote is on whether to extend once again the 3.4 percent interest rate that Congress set on a certain class of student loans. That temporary rate, which lapsed last week, has been a potent political tool for years. It started as a Democratic 2006 midterm campaign gimmick. In the past couple of years, politicians from both parties have cited their passionate objection to its expiration as proof that they care more about students than do their opponents.
But the 3.4 percent rate is expensive policy based on Congress’s whim, and it’s not the best way to promote college affordability. Pell Grants go to the neediest of students. A strong income-based repayment system, meanwhile, is a more efficient safety net than is offering a low, fixed rate even to students who go on to make gobs of money after graduation.
Instead of continuing to fix rates based on politics and guaranteeing more distraction in a year’s time, lawmakers should finally end the mindless, recurring skirmishes over this issue. Luckily, there are serious plans on the table to do that, and politicians willing to act on them. The president has proposed pegging rates on student loans to that at which the government borrows money, plus a modest markup. The GOP-led House has proposed roughly the same thing, though with some substantive differences. Now the action is in the Senate, where those differences can and should be ironed out.
At first such a system would result in rates lower than where they are now — 6.8 percent, following their reset upward. That’s better for soon-to-be debtors, but it also means reform would cost the government more relative to current law, at least for a time. Yet the system would also be more flexible and much more sustainable in the long term, guaranteeing that rates reflect the government’s cost of borrowing and the real economy, not simply the politics of the moment. And though student interest rates might fluctuate like everyone else’s, the amount the government helps students would not change. As long as lawmakers fill in some of the details reasonably, the policy is worth the price.
With the president and the House in near-alignment, the Senate has no excuse to fail. Mr. Obama should press Democrats hard and work with Republicans to strike a deal, not to vote for dead-end policy.