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Published June 06 2013

Forum editorial: Student loan reform is elusive

As families struggle to cobble together college financing packages for new high school graduates, caution is advised. The nation’s student loan debt is huge, rivaling total debt for nearly every other classification of borrowing. More troubling is that a significant segment of college graduates leave college saddled with debt that can’t be adequately serviced because the student can’t find a good-paying job.

As Congress debates what to do about subsidized interest rates for college loans, the discussion must include unintended consequences of the egalitarian notion that everyone is entitled to a college education. Among them: crushing student loan debt at graduation; a job market that culls out less-valuable degrees; the greater-than-inflation increases in the cost of a college education, brought about in part by the guarantee of revenue from subsidized student loan and grant programs.

The congressional debate is focused on interest costs: whether the current rate of 3.4 percent should be allowed to double, or to float with prevailing market interest rates. But the interest rate, while important, will not cause student borrowers to be more careful about signing a big loan. Payment is not demanded until after graduation, four or five years in the future (sometimes even later in default situations). The expectation is a shiny new college degree will mean a good job and thus the ability to make loan payments. Except in the real world it’s not been working out that way for tens of thousands of college grads.

More concerning is the effect student loans seem to be having on attempts – real or sham – to hold college costs down. The loan program is a disincentive for colleges to cut costs, or at least slow the increase in costs. After all, the huge pool of college loan money flowing to the campuses just keeps getting bigger. The schools get paid, whether a student is successful on campus or not.

Finally, the change in the loan program a few years ago guarantees that billions of dollars in interest are paid to the federal government. It’s a cash cow that, again, is a disincentive to reform the program.

The debate in Washington just got started. Whatever changes are made, if any, won’t happen soon. But, to be sure, the interest rate flap is a symptom of deeper structural problems with the student loan program.

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Forum editorials represent the opinion of Forum management and the newspaper’s Editorial Board.