Jack Reed wants to set interest rates on Stafford loans at 3.4 percent. | JAY WESTCOTT/POLITICO Student debt rises as political issue

The White House and Democratic lawmakers are scrambling to find funds to stop an expected doubling of student loan interest rates this summer, arguing that they’re heading off another potential blow to the economy.

But the new House GOP budget doesn’t include the $6 billion needed.


The Democratic strategy consists of shame and politics: Their way, they say, will save thousands of dollars for college students who already are swimming in debt. And if the Democratic lawmakers don’t get their way, parents signing tuition checks will be hearing about it ahead of the election.

“It will be a very potent issue, certainly on college campuses but definitely for students’ parents who are going through the financial aid process on the eve of the election,” said Rep. Joe Courtney (D-Conn.), who is sponsoring a bill backed by 109 Democrats to hold the rates down on the government-subsidized Stafford loans.

House Education and the Workforce Committee Chairman John Kline (R-Minn.) says that though he’d like to reduce college costs, paying for the loans with deficit spending isn’t the right way to go — and the only alternative would take away from other programs in his own budget for higher education financing.

So Courtney said Democrats are aiming to move a bill through the Senate to force the House’s hand. Among the options is Sen. Jack Reed’s (D-R.I.) measure to set interest rates on Stafford loans at the current 3.4 percent.

Student loans tap in to the broader Democratic message about economic fairness. At a time when the Federal Reserve is basically giving banks money for free, Treasury bonds are being sold at 2 percent and mortgage rates are 3.8 percent, Democrats say it’s outrageous to make college students pay 6.8 percent.

Nor can private student debt be wiped away by bankruptcy. Assistant Senate Majority Leader Dick Durbin (D-Ill.), in addition to backing Reed’s bill on interest rates, is sponsoring a measure to change that.

“Right now, we are facing a student debt bomb,” Durbin said. “We are moving to the equivalent of the subprime mortgage mess in student loans and we can’t make it any worse.”

The debt has ballooned past $1 trillion, the Consumer Financial Protection Bureau announced last month. More than 37 million graduates and dropouts owe money.

“That number has gotten so big, it comes with actual consequences,” said Rich Williams, the higher education advocate for the U.S. Public Interest Research Group. “The amount of debt they have impacts important life decisions, like buying a home, whether they get married and have children.”

If the Stafford loan rates double, an average borrower would pay an additional $2,800 over the course of a decade, while someone who maxed out the available subsidized loans would owe an additional $5,000, Williams said.

Republican presidential front-runner Mitt Romney indicated at an Ohio campaign stop last month that the era of government loans and grants for education should end. “It would be popular for me to stand up and say, ‘I’m going to give you government money to pay for your college,’ but I’m not going to promise that,” he said. “And don’t expect the government to forgive the debt that you take on.”

The issue has not always been highly partisan, since 77 House Republicans — including 46 current House members — supported the 2007 conference report that lowered the interest rates and President George W. Bush signed it.

But five years later, Republicans say their concern is the trillion-dollar deficit. So to address the rising tuition costs without aggravating the federal debt load, the House passed a measure in February to limit regulation of higher education.

And to maintain the cheap loans, another higher-ed program would have to face the chopping block, said Jennifer Allen, a spokeswoman for the House Committee on Education and the Workforce.

“We are continuing discussions on action to help borrowers and ease the college cost burden for students and families,” Allen said. “Tackling the challenge of the Stafford loan interest rate increase will require tough choices.”

Democratic Hill staffers said their goal is to find offsets outside the higher-ed budget, but going that route requires support that has yet to materialize from the House Republican leadership.

All of this might leave the solution bowing more to basic political considerations.

“We’ve always seen student aid as a way to buy votes, or not to appear to be working against the middle class,” said Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute, a libertarian think tank. “People of both major parties will continually vote to increase student aid, even if they know the realities, because no one wants to appear to be the bad guy.”