Policy Shop: Why Congress Should Cut Student Loan Interest Rates

Another post over at Policy Shop. An excerpt:

With that said, there is something really bizarre about keeping student interest rates so high. The whole point of the Federal Reserve’s zero interest-rate policy is to drive the cost of debt down. That is the channel through which it is meant to be stimulative. Among other things, such a policy enables firms, households, and other entities to swap out higher-cost debt with lower-cost debt, freeing them up to consume more and thereby increase aggregate demand. Holding student loan rates at their pre-recession levels despite the Fed’s rate cuts renders those rate cuts at least partially toothless. Congress’ failure to lower student loan rates is literally counteracting the Fed’s monetary stimulus efforts. This makes absolutely no sense, especially when Congress simultaneously refuses to undertake its own fiscal stimulus.

Read the rest over at Policy Shop.