Friday, January 19, 2007
The problem for the House was how to pay the subsidized interest under its new PAYGO rules (or actually the old rules, according to Dick Armey -- WSJ subscriber link.) The subsidies are a $6 billion gift to young college graduates which must be paid by increasing taxes and fees or cutting spending somewhere else. In this case the burden is being paid by lenders who provide students with college financing (if you own Sallie Mae or Nelnet stock, you lost money this week.) Thus the House is reducing the amount of money available to finance incoming freshmen to give a temporary tax break to young college graduates. So which group votes more?
UPDATE 1/20: KT correctly points out that the interest rate falls immediately in increments, but is subject to a sunset in 2012. The rate schedule is
- July 2007: 6.12%
- July 2008: 5.44%
- July 2009: 4.76%
- July 2010: 4.08%
- July 2011: 3.4%
A larger point, however, is that setting any credit control that binds interest rates below what the market will bear shifts money out of the controlled market into uncontrolled markets. A bank that might have made subsidized student loans in the past may instead now shift their assets into Treasury bills or business loans.