Bloomberg View: A Sensible Way Forward on College Loans

On July 1 the interest rate for new Stafford subsidized federal college loans will double. Rather than trying to maintain the current rate, Congress should take this opportunity to restructure student aid, directing more money toward those with the greatest need.

President Barack Obama initially proposed just that. He called for rates on subsidized loans, which are set by Congress and are currently 3.4 percent, to be equal to the cost of 10-year Treasury notes plus 0.93 percentage points: That would work out to a current rate of about 3 percent. For unsubsidized loans, the rate would be set to the 10-year Treasury note plus 2.93 percentage points. (Interest accrues during school for unsubsidized loans, while the government pays the interest on subsidized loans.) The Congressional Budget Office estimates the changes will save $6.7 billion over 10 years. Obama’s proposal would use those savings to help pay for an expansion of Pell Grants, which go to the neediest students, and as their name implies, require no repayment at all.