High concern with low interest

Like the ubiquitous "Hit the monkey and win a free iPod!" pop-up banners, a headline screaming that student loan interest rates had been halved by a congressional bill yielded immediate feelings of wariness.\nThe IDS editorial board consensus resonated on a similar frequency as the arguments conducted in Congress weighing the pros and cons of the bill. It wouldn't really help students currently at a university, it's designed only for very low-income students with subsidized loans, and the interest rate cut is a gradual fall from 6.8 percent to 3.4 percent over five years.\nTrue, a halving of the interest rate in subsidized loans -- clearly hovering around the lowest interest rates available -- is a huge step. Inflation hovers around 3 percent (2006 average was 3.24 percent). To enact an interest rate so close to inflation is very close to giving away money, even if the program only hits the lowest interest rate for a short time before it expires in Jan. 2012. An interest rate only a fraction of a percentage over inflation is shocking. \nBut all the same, the biggest accomplishment here is an ostentatious bipartisan move in a new direction, heard loud and clear by the supporting constituency. After all the economics supporting its structure are analyzed, the give-and-take chalks up a to net gain of a morale booster: This pivotal part of the Democrats' first 100 days speaks forcefully to voters, yes, this is a new Congress and it is revamping priorities. While the financial allocation strategy behind it is not incredibly impressive -- the $6 billion to finance the cut had to come from somewhere, and it's coming from taxpayers' pockets and decreased government benefits to the loan providers themselves -- the legislation remains important for its conspicuous political significance. It's strong messages like this that voters wanted from the Democrats. \nCould the resources have been better allocated elsewhere? Undoubtedly. The bill does nothing to cap soaring tuition costs, which have grown at an average of 1 1/2 to two times the inflation rate in the past 20 years. It also doesn't touch the middle class -- all the families with incomes just high enough to ensure that no government aid is given, thus forcing the parents to turn to loans in order to get their children through school, won't benefit. On that note, interest rates on loans taken out by parents were not reduced, and will continue to rise with inflation. The bill's opposition is economically well-founded. \nAgain, the best thing this legislation has going for it is a dynamic rallying point for America's priorities glancing toward education. All you out there entering college in 2011, rejoice! (In fact, at those rates -- rejoice and then invest!) As for the rest of us who missed out on the golden year, we'll get excited when we start seeing a reliable trend of education-oriented legislation out of our new Congress.\nBut it's early in the session, and Pelosi and the gang have already churned out a strong message saying public education funding is back on the radar. This is a start. Now let's keep this going.