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What's the long view on student-loan interest rates?

Is the debate over the student loan interest rate more political fodder?
Is the debate over the student loan interest rate more political fodder?

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Today, another full-court press begins to keep the interest rate on Stafford student loans capped at 3.4%, rather than double on July 1.

President Barack Obama is getting on the phone with student government leaders across the country and the Senate floor just took up debate on the 'Stop the Student Loan Interest Rate Hike Act.' The bill is a short-term measure, extending the lower rate for just one more year. It was back in 2007 when a bipartisan measure instated the lower rates -- that were only supposed to last for this five-year stretch.

Secretary of Education Arne Duncan argued in an op-ed in The Harvard Crimson student paper: "As we work to get the economy back on track, no one is suggesting it would be a good idea to double interest rates on credit cards or home mortgages. Why then do some believe it's a good idea to double interest rates for students?" As for his counterparts across the aisle, Republicans are largely on board and the Act will pass in all likelihood. (The only quibble is how to pay for it -- no small quibble at that.)

Still conservative economists argue keeping the interest rates low and putting more money in debtors' pockets will not stimulate the economy. The editorial board of The New York Times likes the rate cap, but questions what happens come 2013. "Washington only wants to deal with these matters on a piecemeal basis, or when it is to one side’s political advantage," they wrote.

Tuition is only going up. There's no lesser demand for a college degree. So what to do about the debt and repayments? There's no bankruptcy out as we've discussed on AirTalk before, so what's a fair interest rate for a student loan?


Richard Vedder, Economist; Professor, Ohio University Department of Economics

Mr. Christian Weller, Associate Professor of Public Policy at the University of Massachusetts Boston; Senior Fellow, Center for American Progress – specialization in macroeconomics, retirement income security, money and banking, and international finance.