Their proposal, scheduled for a vote next week, would cut interest rates on some student loans in half. However, the college tuition plan has been scaled back since it was first touted on the campaign trail last year.
The interest rate relief would apply only to need-based loans and doesn't help people who take out unsubsidized student loans -- a distinction not made in the campaign literature Democrats handed out before winning control of Congress last fall. The measure also abandons a pledge to reduce rates for parents who take out loans to help with their kids' college costs.
But my favorite is how they intend to pay for what rate reductions they're forcing:
To avoid increasing the deficit, the bill's cost would be offset by trimming subsidies the government gives lenders and reducing the guaranteed return banks get when students default. Banks also would have to pay more in fees.
So banks would have to make loans at cheaper interest rates, but get less in subsidies, less in fees, and less in the very likely event that someone defaults.
What seems most likely is that less banks will choose to make student loans at all -- which ought to do wonders for college accessibility.
Secretary of Education Margaret Spellings has the right idea; if the government wants to make college more accessible, it should cough up more via Pell Grants (which don't require repayment), rather than forcing private industry to unprofitably subsidize matters. But that makes it impossible for Democrats to even continue to pretend that they can increase spending massively without similarly increasing taxes.
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