Enlarge
Lower interest rates on student loans don't do much to reduce the spiraling cost of a college education.
College students can breath a sigh of relief now that Congress has finally agreed on legislation to keep interest rates on federal student loans from doubling to 6.8 percent this school year.
The Senate passed a compromise bill Wednesday night that ties federal student loan rates to the yield on 10-year Treasury notes. That means undergraduates will pay an interest rate of 3.86 percent on loans taken out this year; grad students will pay 5.41 percent.
These interest rates will increase as the economy improves, but the legislation caps interest rates for undergrads at 8.25 percent.
The House is expected to pass the bill next week. Everybody is happy, except for a few Democrats who think the federal government somehow will make money off this deal. The White House issued a statement praising the bill, and House Speaker John Boehner, R-Ohio, crowed that "Senate Democrats finally joined Republicans in passing a permanent, market-based solution on student loans."
But keeping interest rates on student loans from rising won't do much to make a college education affordable. In fact, it may make it worse, some conservatives argue.
"By keeping student loan rates artificially low, the federal government is contributing to the rapid increase in college tuition," writes Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University.
Total student loan debt now exceeds $1 trillion -- it's increased by nearly 300 percent over the past decade, much of that since 2009, when federal student loan rates began dropping.
Student loan debt accounts for 36 percent of Americans' total non-housing debt, a bigger share than auto loans or credit card debt.
