How Republicans Won the Student Loan Debate, and Screwed Students

The Republican-controlled House passed a bill lowering interest rates for federally administered student loans after failing to act before a July 1 rate-increase deadline. President Obama and House Republicans were initially in disagreement over how to best determine rates, with the Republican plan tying interest rates to market forces eventually winning out, potentially allowing for future rates to increase above the current 6.8% fixed rate set after the July deadline.

More Americans receiving post-secondary education and training will produce economic and social benefits for society. Pegging the interest rate to the 10-Year Treasury note with additional percentage points for administrative expenses is projected to increase government student loan profits. There is uncertainty surrounding administrative and market risk costs, prompting Republican concern that the loan program might contribute to the deficit. However, as the economy improves federal loan rates could dramatically rise, increasing the cost of higher education and potentially dissuading bright high school graduates, especially from low-income backgrounds, from applying to college. Passage of this legislation may help lower the chance federal student loans will contribute to the federal deficit, but there appears to be little on the horizon attempting to deal with the rising costs of higher education, labor shortages in critical industries, and youth unemployment. The passage of this bill in both houses is most likely the result of partisanship, Republican dominance in the House, and the Senate's rule structure. 

A bill similar to the one passed by the House in May left the Senate on July 24. Chairman of the House Education and Workforce Committee Rep. John Kline( R-Minn.) praised the passage of the Senate bill, saying it reflected "the policies and priorities of the House." The Hastert Rule has been invoked numerous times during the speakership of Rep. John Boehner (R-Ohio), coinciding with a general trend of increasing partisanship in all levels of government. Late political scientist and legislative expert Alan Rosenthal notes that the shift from candidate-run to leadership-run campaigns and the push to increase the number of seats for the respective parties has lead to more contention and less civility in Congress. Research shows increased legislative instability has negative affects on political trust and support for political institutions. Recent ideological shifts within the Republican Party may also be the source of the party's inflexibility. Opponents of both the Senate and House bills argue that they attempt to reduce the deficit on the backs of students and will lead to higher rates for future students as the economy improves. It appears fallout from allowing the loan rate to double spurred Democratic legislators to side with Republicans in order to bring some kind of short-term relief to students. Special rules in the Senate allowing the minority party to exercise greater influence in the legislative process create a natural advantage for Republicans, considering their sizable advantage in the House. 

10-Year Treasury bond yields are at some of the lowest levels in more than a decade. However, recent positive economic performance might mean less quantitative easing by the Federal Reserve, leading to higher bond yields because of the inverse relationship between bond prices and yields. While higher yields suggest a stronger equity market, increased borrowing costs could reduce both public and private investments. During periods of higher bond yields, the debt burden for future students will increase, with higher borrowing costs also traditionally limiting investment and private sector hiring. Lower-income, female, and minority students are disproportionally affected by higher student interest rates as they generally face higher unemployment rates and lower wages. It's difficult to determine the effect of higher interest rates on college enrollment, but it is probably safe to say raising the cost of college enrollment is unlikely to encourage greater higher education obtainment.  

As college costs rise and families continue to recover from the effects of the last recession, this legislation will do little to address the factors making it more difficult for families to put their children through college. Passage of the bill in the Senate after initial disagreement over whether to set fixed or floating rates suggests that a deal was reached to temporarily relieve students and their families and prevent further resentment of Congress, which might be a remarkably difficult thing to do. Students of the legislative process are probably well aware of the strategic considerations that come along with participation in a two-party system. As Rosenthal notes, increased partisanship can lead to legislative dysfunction. The recent spate of passage of temporary measures to address long-term issues suggests this dysfunction has been affecting legislative efficiency for some time. Without more civility, empathy, and compromise within Congress, it is unlikely that there will be legislation addressing many of the long-term issues the nation faces.