Congress is again debating what to do about interest rates for federal student loans, which are set to double July 1, to 6.8 percent. Several proposed solutions are being debated, but none tackles the real issue: skyrocketing college costs.

This is a national crisis, and President Barack Obama and Congress ought to acknowledge the implications. If low- and middle-income kids can’t afford college — or if they have to mortgage their future to do so — the already yawning gap between rich and poor will only widen. Businesses won’t have the workers they need to compete. The words “American dream” will become a punchline.

Proposals from House Republicans and Obama take a small-ball approach. They would tie the interest rate on federal student loans to the rate on 10-year Treasury notes. Obama would add 0.93 percent to the subsidized rate, while House Republicans would add 2.5 percent.

There are other differences between the plans, but neither would be better for college students than the 3.4 percent rate now in place. By one estimate, the Republican plan would cost students borrowing the maximum amount about $6,000 more over 10 years than the existing rate.

A group of Democratic senators have a better idea: the Student Loan Affordability Act. It would freeze student loan rates at 3.4 percent for the next two years and pay the cost by closing tax loopholes. In the meantime, lawmakers can work on the reauthorization of the Higher Education Act, which expires at the end of the year, and look for a more comprehensive solution.

According to a recent study from the Center on Budget and Policy Priorities, in the past five years public four-year colleges raised tuition an average of $1,850, or 27 percent. In California, the hikes were much steeper: 72 percent. The cuts in all states were largely a response to state budget cuts.

Education Trust, an advocacy group working on behalf of disadvantaged students, has proposed a comprehensive solution that lawmakers should consider. Its “Doing Away With Debt” plan would direct about $20 billion in federal funds now spent inefficiently on higher education programs, such as tax credits and loan subsidies, directly to states. In exchange, states would have to meet certain benchmarks, including guaranteeing that the poorest students could graduate from college without debt and that loans for middle-income youths would be interest-free.

It’s an innovative, forward-thinking idea — exactly the kind lawmakers themselves should be proposing to solve our nation’s biggest problems.

San Jose Mercury-News


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