With just days to go before the clock runs out, Congress appears ready to forge a reasonable compromise to keep interest rates low on federally subsidized college loans for the coming year. Without action, the rates would double from 3.4% to 6.8% on July 1.
Under the compromise, Congress would keep the interest rates at their current level, raising much of the $6 billion it would cost to fill the gap by charging companies more to insure their pension programs, with proceeds to go toward the student loans. In addition, loan requirements would be toughened slightly by cutting off eligibility for students when they take more than six years to earn a bachelor's degree.
There are other steps Congress could reasonably take to keep rates low while minimizing federal spending. It might make sense to allow a small increase in the rate to go forward. A 1-percentage-point increase would cost students less than $1,500 over the life of the loan, for example, even if they borrowed the maximum allowed under the program. Advocates of the low-cost loan program have made it sound as though any rate higher than 3.4% is unthinkable, but in fact the rate has been that low only for this past academic year; the year before, it was 4.5%, and no one was complaining that the rate was exorbitant.