Democrats spring student loan trap on GOP

Neil Munro | White House Correspondent

The Democratic Party is springing a five-year-old political trap that may help President Barack Obama win support from middle-class parents and young voters.

Their trap is the scheduled election-year doubling of interest rates on government-provided student loans.

The pre-planned doubling forces GOP politicians to either approve a Democratic measure that extends the low interest rates, or else face protest from millions of students and their middle-class parents.

Many GOP legislators dislike the subsidized interest rate because it inflates education costs while delivering a disguised subsidy to the Democrats’ political allies in the education industry.

The trap “kinda makes sense,” said Mark Kantrowitz, publisher of Finaid.org, a financial aid website.

“It’s a ‘Heads I win, tails you lose,’ scenario, where if President Obama succeeds in getting it extended a for a year he gets a victory for a key segment of the voters [and] if it gets blocked, he can blame his opponents for blocking it.”

“Either way he wins,“ Kantrowitz said.

Under the 2007 law shepherded by then-House Speaker Nancy Pelosi, the rates on government Stafford student loans were gradually lowed from 6.8 percent to 3.4 percent. But they will suddenly double July 1 from 3.4 percent to 6.8 percent.

Obama’s weekend message will call for an extension of the 3.4 percent rate, and he’ll fly out to swing-state Colorado on Tuesday to push his message again. He will “deliver remarks as part of a concerted effort to get Congress to prevent interest rates on student loans from doubling in July,” according to a White House statement.

On Tuesday, he will also fly to swing state North Carolina and appear on comedian Jimmy Fallon’s late-night talk show to talk about student loans. On Wednesday he will visit the University of Iowa with the same message, the White House announced in a statement.

To kick off the campaign, Education Secretary Arne Duncan appeared in the White House Friday to appeal for the extension which will cost $5.6 billion per year.

Moreover, the political impact of the Democrats’ trap is enhanced by their economic policies, which have boosted parents’ worries that their children can’t prosper amid record unemployment rates, record debt and sluggish growth.

The increased public worry about growing education-sector debt also aids Democrats. The student-loan debt has grown rapidly in recent years to $1 trillion.

However, much of that debt is been created by post-graduate students, who are likely to earn more than other Americans. The American Bar Association’s journal reported in March that the average debt of graduates from private law-schools had reached $125,000, for example.

Graduates from public law schools were in debt an average of $75,000, the journal reported.

In contrast, the average debt owed by graduates from 1-year, 2-year and 4-year colleges is $21,000.

Republicans are loath to approve a large-scale student loan bailout because any bailout would subsidize the wealthy and inefficient education sector with money from all taxpayers, including poorer taxpayers. Also, GOP legislators are unsympathetic because the post-graduate professionals — and employees in the education industry — are relatively wealthy and mostly align themselves with the Democratic Party.

Stafford loans are not offered to people seeking post-graduate degrees.

No matter how the GOP navigates this interest-rate trap, Obama’s 2009 stimulus law also scheduled a second trap that will be sprung later this year.

That second trap is the expiration of a measure — the American Opportunity Tax Credit — that gives middle-class parents a $2,500 tuition tax-break for four years. If that benefit is not extended by January, it will shrink back to a benefit worth $1,800 for two years.

Joe Biden has been road testing Obama’s education pitch for several months in such places as Florida and Ohio.

In December, for example, Biden pitched a college degree as a vital marker of status while downplaying trade schools and private-sector education.

A college degree “is about dignity, a sense of yourself, this notion of self worth, your standing in the community … it’s about becoming a better man and better woman,” Biden said to a roomful of parents and students. It’s about a person’s “social acceptability … the sense of your self worth and accomplishment. … A college education is almost a prerequisite to the middle class,” he said.

“The guys on the other side are very mad at us,” he told the crowd. “They’re telling us, ‘You’re giving away money … [but] they don’t have any trouble giving away money to some people if they’re wealthy enough.”

“There is no higher priority in our administration” than education, he said, prompting applause from the voters in the school auditorium.

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