Affordability v. “Big Student Loan”– A Case of Newton’s Third

The biggest news in “Education” yesterday made headlines in the New York Times (“House Cuts Interest Rate for Some Student Loans,” Schemo), the Chronicle of Higher Education, and every other mainstream rag online and off with their ear to the rail. Seems like the Senate has gone ahead and passed a bill that might cut both ways but not without much ado about it. Essentially the new regulations intend to incrementally slug away at guaranteed student loan interest rates charged by the big corporations, such as the ubiquitous Sallie Mae and Citibank, among a rank of others. The plan slashes interest rates in half over the course of the next five years. The purpose, say scores of bipartisan Senators, is to make college more affordable for the middle class.

“According to the U.S. Public Interest Research Group, the bill would save the average student who starts college next year about $2,300 in interest payments over the life of a 15-year loan.” (NYT)

This is good news for the middle class, right? Or does the political rhetoric serve as smokescreen for the real issue(s)?

Cost of Affordability

Ironically enough, at the same time such legal and political measures are promulgated as beneficial to the constituency, you have to wonder if the ramifications loudly argued by Big Lenders are now set in motion to counter any positive actions—kind of a typical lesson in Newton’s Third: for every action there is an equal and opposite reaction.

The bill, of course, costs the government a reported 6 billion dollars. According to the Chronicle, though, the largely Democrat-driven plan delegates a share of the cost to the biggest lenders, whose “profit-margins” will be chopped in the federal loan program:

“’This program, which has been highly reliable and serves students attending 80 percent of all U.S. colleges and universities, cannot sustain annual deep budget cuts without the quality of services to borrowers being hurt,’ the bankers’ group said.” (Chronicle)

Semantics of the Problem

The issue at hand could open a huge Pandora’s box of conjecture on a range of issues. Not only do the new measures seem to pit the college public against the good of big banking, but it also pits small lenders against large and challenges politicians across the board who will not risk alienating their “middle class voters” (NYT). In fact the real issue might be out of this particular ballpark, altogether—the college and universities themselves whose costs rise faster than the middle class paycheck to cover cost of living and inflation.

The only party, surprisingly, that pointed to this neglected player was the White House, which summarily opposes the new measures:

“The White House statement…said access to higher education should be improved by containing costs. The responsibility for helping families, the statement said, ‘must be shared with colleges, which also have a central role in making higher education affordable.’” (NYT)

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