When responding to questions about whether higher education is worth it, Id be considered traitorous as a tenured law professor at an expensive, remarkably good law school, if I didnt insist that higher education has intrinsic value.
Higher education can have real merit, but even impressive values have to be weighed against costs. Are college and other higher-education costs fair? Should you or your loved ones go to college or graduate school and incur those costs? How can you or they pay for any costs incurred? And in that mix, what should be the federal role?
Theyre tricky, interlaced issues, lacking easy answers. Congress is now considering one aspect of whether college and higher education costs are worth it. A temporary deal struck last summer during the presidential campaign, extending Democratic-advocated reductions in subsidized Stafford student loan rates to 3.4 percent, will expire June 30. Those rates will double the next day to 6.8 percent if Congress doesnt act.
Most students in higher education are from somewhat-higher-income families, and are already paying student loan rates between 6.8 and 7.9 percent through non-subsidized Stafford loans.
That program is problematic, because it forces those students to pay higher rates than theyd pay to borrow to buy a car in the private lending markets. Would we prefer young adults buy better cars, or build better minds? It should be a no-brainer.
Despite congressional dysfunction and gridlock on many fronts, a new political deal on student loan rates will probably be reached shortly. U.S. intellectual energy needs a jolt in an increasingly wired but jobless America. Neither party can afford to alienate the next generation of highly-educated voters.
On May 23, the Republican House passed a bill to peg student loan rates at 2 percent over the floating 10-year T-bill rate, about 5 percent next year according to Congressional Budget Office projections. Loan rates could float higher if interest rates do, too.
President Obama also has a proposal to float student loan rates, with varied increments over the 10-year T-bill rate depending on the students families income levels. Obamas plan would also limit loan payments to 10 percent of income, and then, after 20 years, the whole loan would be forgiven.
Obamas need-based floating-rate program sounds appropriate, but the loan-forgiveness parts of his plan seem designed to encourage decades of loafing. Federal law and policy already offer too many incentives for loafing, and too many disincentives for achievement and earning.
The Democrat-controlled Senate is cooking up a number of proposals, none of which has yet passed as I write.
A former law professor, Sen. Elizabeth Warren of Massachusetts, proposes the lowest student-loan rate for everyone, pegged at the federal discount window loan rate to desperate banks, 0.75 percent currently. Other Democratic proposals would extend for two years the subsidized Stafford rate at the present low level of 3.4 percent. Some Republican senators are suggesting more market-based alternatives not unlike the House bill.
Overall, the parties seem to agree that young people should be helped to enroll in higher education if possible. But does that mean subsidizing everything thats advertised these days as the college experience?
The subsidies for students to study in higher education also pose incentives for institutions of higher learning to jack up tuitions to pay for whatever might be justifiable, including fancy student centers, live entertainment, spectator sports, personal laptops, administrative hand-holding, and, frankly, whatever sells to the customers. The academicians are selling out to the marketers to capture as many federally subsidized dollars as the schools can get.
The debate about interest rates also misses the fact that already-incurred student loan debts are now more than $1 trillion, surpassing national credit-card debt. Because of restrictive federal bankruptcy rules, student loans are unduly hard to escape.
What might we do?
Heres a partial suggestion. Instead of blindly following U.S. News & World Report rankings that mostly track institutional fame, we could be asking our colleges and universities to prove that their student borrowers are on track to get increases in human capital justifying their expenses.
Oedel teaches at Mercer University Law School.