Tags: student | loan | rates | costs | cato

Cato Institute's McCluskey: Rise in Student-Loan Rates May Lower Education Costs

Thursday, 11 Jul 2013 06:57 PM

By Bill Hoffmann

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The controversial doubling of student-loan interest rates could actually help stem the rising costs of a college education, according to Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute.

"College costs have skyrocketed for decades beyond even healthcare ... because people pay with other people's money, mainly through the federal government, heavily-subsidized loans, [and] federal grants," McCluskey told “The Steve Malzberg Show” on Newsmax TV.

Story continues below video.



"So the more people pay with their own money, the better it is to get rational pricing," he said.

Loan rates are doubling from 3.4 percent to 6.8 percent after an effort to restore the lower rates has failed in the Senate.

The White House and most Senate Democrats favored restoring interest rates to 3.4 percent for another year, but lawmakers Wednesday were unable to muster the necessary 60 votes to overcome a procedural hurdle.

McCluskey said the government initially became involved in student loans to help low-income students afford college.

"But very quickly, and probably even from the beginning, it was driven primarily by political interests," he said.

"And what's in the interests of politicians is to give out as much of other people's money as they can to people who want to go to college or think they may want to go ... because then you're essentially buying their votes.

"No doubt there [are] still people who think we need to supply this money to make college affordable, but … the main effect of this is just to pump up prices to ridiculous levels."

The Cato Institute is a public policy think tank dedicated to the principles of individual liberty, limited government, free markets and peace.

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