Boehner: House Will Vote On Student Loans
MICHEL MARTIN, HOST:
I'm Michel Martin, and this is TELL ME MORE, from NPR News. Coming up, the latest poetic tweet from you, our listeners in our Muses and Metaphor series. That's in just a few minutes.
But first, we want to talk about an issue that's causing a lot of anxiety on college campuses around the country: the potential increase in the cost of some - and we want to emphasize some - student loans. Interest rates could double for many loans this summer if Congress does not extend the 2007 College Cost Reduction and Access Act. That means students taking out new loans would pay 6.8 percent in interest instead of the current 3.4 percent.
President Obama wrapped up a brief college tour yesterday, where he has been pushing for Congress to extend the act. And this is one of those issues where he and the presumptive Republican presidential nominee, Mitt Romney, seem to agree. And House Speaker John Boehner has announced plans to act on the potential rate hike.
But we wanted to answer some questions many people might have about this, including who is likely to be affected if Congress doesn't act, so we called upon Jason Delisle. He is the director of the Federal Education Budget Project at the New America Foundation. That organization focuses on what they call next wave policy issues, and Jason Delisle joins us here in our Washington, D.C. studios.
Thanks so much for coming.
JASON DELISLE: Thanks for having me.
MARTIN: Well, first of all, could you just tell us: This isn't all student loans. Which student loans are affected by this, and how many people would this likely affect?
DELISLE: It is - first of all, it's for newly issued loans. I think that's really important to keep in mind. Borrowers and students who have outstanding loans currently, this will not affect the interest rate on their loans. So this would be for loans issued for this upcoming school year, but not all federal student loans - only those loans issued to undergraduate students, and only what is called subsidized Stafford loans.
MARTIN: And who has those?
DELISLE: So these are undergraduates whose family - or they, themselves, if they're independent students - meet some sort of fairly limited income test. But there's also a cost of attendance component, as well, which can sort of skew the results of who gets a loan. You can...
MARTIN: So, if you have a low income or if you have a high income, but you're attending an expensive institution, then you might qualify for a Stafford loan, one of these loans.
MARTIN: How many people are we talking about?
DELISLE: It's unclear how many people. Some of the numbers that are out there are around six million borrowers. These will be new borrowers coming up this school year. We're not actually talking about a large dollar value on the amount that these students can borrow.
MARTIN: If you're just joining us, you're listening to TELL ME MORE, from NPR News. We're talking about a possible rise in the interest rates for some student loans. We're talking with Jason Delisle of the New American Foundation, who's been studying this.
As we mentioned, President Obama has had a lot to say about this issue. He's been doing events at college campuses this week, and I just want to play a short clip from his speech at the University of North Carolina at Chapel Hill. This was on Tuesday.
(SOUNDBITE OF SPEECH)
PRESIDENT BARACK OBAMA: Just to give you some sense of perspective, for each year that Congress doesn't act, the average student with these loans will rack up an additional thousand dollars in debt - an extra thousand dollars. That's basically a tax hike for more than seven million students across America.
MARTIN: How does that figure square with you? That thousand dollars in debt, does that sound right?
DELISLE: Well, I wouldn't necessarily call it debt. What the president is talking about is the lifetime extra interest payments that a borrower would make as they repay a loan. So the thousand dollars is essentially, you know, nine or $10 a month in extra repayment over the eight to 10-year repayment period of that loan.
MARTIN: Why is this happening, though? I mean, because interest rates - if you wanted to take out a mortgage right now, I don't know very many people who would take out a mortgage at 6.8 percent...
DELISLE: Right. Yeah.
MARTIN: ...who had any other choices. It seems like not a great number.
DELISLE: That's very much so, the sort of apples-and-oranges comparison. A mortgage is very different, but...
MARTIN: I guess what I'm saying is it seems like you could do better.
DELISLE: You actually can't do better.
MARTIN: You cannot?
DELISLE: You cannot do better, because a student loan is not backed by an asset, like a home. There's no equity cushion, which we call a down payment. There's no earnings test, either. There's no credit check on a federal loan. So if you were to go out and try to get a fixed-rate loan in the private student loan market - so nongovernment-backed - if you can get one, you're looking at fix rates of somewhere between seven, eight and 12 percent with high origination fees, and you, the borrower or the student, will probably have to have a parent or somebody else cosign the loan.
MARTIN: So give us the arguments on both sides. I mean, you've heard, you know, the president's argument, and, as we said, there are indications that the presumptive Republican nominee Mitt Romney agrees with him on this. What's the argument for extending?
DELISLE: The argument for it is that students are taking out a lot of debt to go to college. There are these headline figures of a trillion dollars in outstanding student loans, and college costs are going up and employment prospects are not exactly great for new college graduates. So this is something that both candidates have suggested might help, rather than hurt, college students.
MARTIN: What's the argument against extending the subsidy that would keep the interest rate as low as it has been?
DELISLE: Right. Well, one of them is cost. We're talking about $6 billion to do a one-year extension of this proposal. And I should point out that that's what the president has proposed, only a one-year extension, so only new borrowers this coming year. And after that, the rate goes back up.
The other - and this gets a little bit more technical and a little bit more wonky - but it's what we would call a poorly targeted subsidy. You're extending, you know - this is supposed to help people pay for college and get into school, but the benefit, as we talked about - about $9 a month - is a very small benefit. It's back-end loaded, so it's not necessarily reducing the cost of college. It's just helping you pay for it in very small increments over the course of 10 years - this reduction in the interest rate.
But, also, what we talked about earlier about who gets - who qualifies for this lower rate. Again, this is only a subset of undergraduates. And you're providing this lower interest rate to them based on their family's income when they enter college. You're not basing who gets the rate based on someone's after-school income.
And I think it's, you know, frankly, a little bit irresponsible to spend an entire week focusing on this interest rate reduction. And, again, it's only a one-year extension of the policy. But the Pell Grant program provides much larger benefits to students, and is more important and I think, you know, policymakers would do much better to be focusing on shoring up that program's long-term future than this sort of one-year student loan fix.
MARTIN: So now take the wonk hat off, and if you could put your personal financial college counselor hat on, if you have one of those. I've been looking at a lot of college papers, and a lot of kids are really scared about this. Their parents are scared about this. Is there anything that families who are, say, middle class and who are relying on some combination of grants and loans to get their college educations taken care of, is there anything that they could be doing now?
DELISLE: It's important to keep in mind that the loans will still be available. But I would argue that a big part of the benefit in the loans is the back-end protections that are in the loan. For example, if you are unemployed or having trouble making payments, you can get an automatic deferral and forbearance on your repayments for up to three years. You can qualify for income-based repayment. You can pay back your loan at graduated increments, so it starts out in smaller payments. And those are a good deal, I think, relative to what's out there. There's no income check. There's no credit check.
And all of that's still in place. None of those - those loan programs aren't going to expire, and they don't expire.
MARTIN: Jason Delisle is the director of the Federal Education Budget Project at the New America Foundation. It's a nonprofit, nonpartisan policy organization that focuses, they say, on what they call next wave policy issues, and he was kind enough to join us in our Washington, D.C. studios.
Jason, thanks so much for speaking with us.
DELISLE: Thank you. Transcript provided by NPR, Copyright NPR.