AP Report on Student Loans Exaggerates Potential Scope of Just-Averted Rate Hike

From the headlines to the verbiage in many establishment press write-ups, it would be easy to believe that the just-resolved controversy over interest rates on student loans affects virtually everyone in college who has borrowed money and anyone who graduated (or didn't) who borrowed and is still owes Uncle Sam.

That isn't so. To cite just one example, readers of Christine Armario's Saturday morning report at the Associated Press have to work way too hard to figure that out. Additionally those who listen to snippets of Armario's work on TV and radio broadcasts probably won't hear what she doesn't get to until her third paragraph:

Story Continues Below Ad ↓

Brief relief, long-term questions on student loans

Congress may have averted a doubling of interest rates on millions of new federal student loans, but the fix is only for a year, leaving students on edge over whether they'll face a similar increase next summer.

"It's scary," said Faith Nebergall, a student at Indiana University whose loans currently total upward of $20,000. "And it's unfair to kind of be kept in the dark as to how much money we owe."

Under the agreement, interest rates on new subsidized Stafford loans will remain at 3.4 percent. That's estimated to save 7.4 million students about $1,000 each on the average loan, which is usually paid off over 10 or more years.

Applying basic math, a skill which seems to be beyond the ability of many college graduates these days, the amount of savings involved is a whopping $8.33 per month ($1,000 divided by 120 "or more" months). All the ink used and bandwidth burned by leftist partisans has bee over less than 30 cents a day.

And for context, which Aramario didn't provide, let's go to an AP report by Candice Choi back in early May:

But amid all the rhetoric, it's easy to forget that not everyone who has a student loan would be affected. For those who would be, the impact might not be as dire as feared. Here's what you need to know:

To grasp what's at stake, it's important to first understand that Stafford loans are either subsidized or unsubsidized.

Subsidized loans alleviate the cost of borrowing for low-income students because the government pays the interest on the loan while the student is in school. Eligibility is determined based on financial need; about 70 percent who qualify for subsidized loans have a family income of less than $50,000.

With unsubsidized loans, interest accrues right away, so the loan balance grows while the student is in school.

The current debate centers only on subsidized Stafford loans; the Education Department estimates that about 30 percent of undergraduates have this type.

The other aspect of subsidized loans is that they currently come with a fixed rate of 3.4 percent. This is the rate that's set to double this summer; unsubsidized Stafford loans already carry a fixed interest rate of 6.8 percent.

If the rate on subsidized loans is increased, the higher rate would not apply retroactively to existing loans.

The fact that this only involves new loans certainly doesn't make news reports very often. I would suggest that it doesn't for one reason: It's harder to sensationalize a problem when too many relevant facts get in the way.

Armario's report also tries to downplay the influence subsidizing the purchase of a product -- higher education in this instance -- has on the providers' ability to raise that product's price:

The price of college tuition has skyrocketed in recent decades. Between 1982 and 2007, tuition and fees increased 439 percent while the median family income rose 147 percent, according to a report from the National Center for Public Policy and Higher Education. The price of in-state tuition at a public university has increased by more than 5 percent annually in the past 10 years. It jumped 15 percent between 2008 and 2010 alone.

Cuts to state education budgets have played a significant role in increasing those costs, particularly in recent years. How much influence the expansion of access to federal aid has played is less certain; many insist it plays none. An analysis this year by the American Council on Education concluded there is no evidence to suggest it has, and that any relationship between the two is incidental, not causal.

Of course the American Council on Education would reach that conclusion. The group "is the only higher education organization that represents presidents and chancellors of all types of U.S. accredited, degree-granting institutions: community colleges and four-year institutions, private and public universities, and nonprofit and for-profit colleges." Christine Armario "somehow" forgot to inform her readers of ACE's self-evident self-interest. Imagine that.

Cross-posted at BizzyBlog.com.