Kicking The Student Loan Bill Can

While everyone was focused on the Obamacare ruling this week, the other branches of government worked out their disagreements and passed a giant bill yesterday for funding transportation and student loans, among other things.

Before Obamacare reclaimed the headlines, we heard lots of fretting that the interest rate on federal student loans would double form 3.4% to 6.8% if Congress didn’t extend them by June 30. The news rarely questioned whether or not extending the lower rate was a Good Thing, because it is an unquestioned assumption that Subsidizing Education is a Good Thing, and that More Subsidizing is always better than Less Subsidizing.

Additionally, media reports often implied that this was an unprecedented thing, leaving out the important fact that the rates were only lowered from 6.8% to 3.4% five years ago as part of a “temporary” five-year deal. Even worse, some reports called the doubling “an automatic increase that Congress enacted five years ago to save money,” implying not only that the rate has always been at 3.4%, but that a stingy Congress actively decided to increase it in 2012. The truth is that the rate had been 6.8% for a long time, and Congress decided to lower it in 2007 but only made it “temporary” so they could say they were making things better now while saying it only cost X amount (instead of raising taxes or cutting spending somewhere to pay for it permanently, because that would require pain and sacrifice).

Of course, when the five years was up, it was unquestioned by everyone (including Congressional leaders and presidential candidates of both major parties) that the lower rate needed to be extended. (I think it borders on outright fraud that we have so many policies that are pretended to be temporary on one end and are unquestioningly extended on the other end while they pretend all over again that the latest extension is another temporary one. Of course, maybe it has something to do with playing the cognitive dissonance of voters’ desires to cut the size of government without cutting anything specific. There’s a much bigger sequel called “Fiscal Cliff” coming December 31.)

For awhile there was disagreement on how to pay for the extension. I think Republicans wanted to cut spending from somewhere and Democrats wanted to raise taxes from somewhere. Of course, one of those solutions would have caused pain and sacrifice from somewhere, so in the end, they unsurprisingly settled on a bizarre accounting trick that mostly just steals money from the future, although there were actually some tiny increases of revenue and reductions of benefits mixed in:

Under the agreement, the government would raise $5 billion by changing how companies calculate the money they have to set aside for pensions. That change would make their contributions more consistent from year to year and in effect reduce their payments initially, lowering the tax deductions they receive for their pension contributions.

Another $500 million would come from increasing the fees companies pay for the government to insure their pension plans, linking those fees to inflation.

In addition, $1.2 billion would be saved by limiting federal subsidies of Stafford loans to six years for undergraduates.

They won’t be able to play the pension-funding-tax-deduction trick again when the rate comes up for extension next year, but, hey, there are re-election campaigns to worry about right now!

This morning I saw a headline from NPR called “The Flip Side of the Federal Student Loan Deal” (it looks like the headline has changed, but it’s still in the URL). For a moment I thought they might actually be questioning the notion that it is a Good Thing to only ever increase the subsidizing of education and encouraging students to load up on unpayable debts, but they are actually mourning some hidden restrictions on the subsidizing (i.e. Bad Things):

For example, graduate students will now have to pay the interest on their loans while they’re still in school. All students will have to start paying back the money they borrowed immediately after graduation — the six-month grace period during which the government paid the interest is gone…

That’s not all, he says. Lawmakers have limited the number of semesters needy students can receive a Pell Grant and made it harder to qualify for the maximum award.

Would you look at that? The government actually has cut back on some aspects of the subsidizing! Look, I’m not trying to trivialize how these government decisions impact the stretched budgets of millions of people, including many I know and care about. But I’m of the opinion that the government has gone so far subsidizing education that there’s no way to turn back now without causing some pain to lots of people.

Maybe we need to get more creative, such as limiting loans based on the kind of degree you’re pursuing and the kind of income you might expect when you graduate and the unemployment or job growth levels in in the industry you’re pursuing, although that sounds terribly technocratic. I don’t know. But the government cannot forever shell out increasing loans to colleges that keep increasing costs much faster than inflation. One way or another, things will have to change.

Just not “this” year.