USA Today has an editorial that injects some reality into President Obama's campaign to keep interest rates low on subsidized student loans, a campaign on which the president has been spending a large amount of time:
Student loan rates are as high as they are in part because they're risky. For one thing, there's no collateral, no home or a car a lender can repossess if the borrower defaults. The government can hardly take back someone's education.
And student borrowers do default; about 23% of recipients stop making payments on the subsidized Stafford loans Congress is fighting over. Private lenders that make student loans handle the risk by charging rates sharply higher than the government does — up to 12% or more.
These private loans come with few or none of the generous terms federal student loans offer, such as the ability to postpone loan payments until after graduation, forgo interest accrual for up to three years if the borrower is unemployed, and adjust loan repayment to the borrower's income. Compared with private loans, the direct federal loans the government makes are a very good deal, even at 6.8% interest....On a maximum loan of $5,550 for a third- or fourth-year student, the difference between a 3.4% rate and and a 6.8% rate is less than $10 a month...it's a $6 billion, one-time fix that virtually guarantees politicians will be fighting the same battle again a year from now