The NY Times reports the House and Senate are close to agreement on higher rates for student loans.
In my diary about an early July Senate bill on student loans, I mentioned the issue of negotiation and compromise:
By merely proposing a bill to extend the time period the pre-July 1 interest rate would apply, it essentially made the best case scenario that a Senate-House compromise would result in a new interest rate higher than the old 3.4% but less than new 6.8%.
The House had already passed a different student loan bill in May. So the Senate already knew the House's first negotiating offer. Past experience tells us that it would have been foolish for the Senate to assume the House would accept the Senate bill without changes even if the House had not already put together and passed a different bill on the same matter. Whether or not one sometimes feels Senators act as if they were dumb, they're not really that stupid. (Or even if you believe
some Senators are, certainly most of the Senate leadership is not.)
Which leaves us with one fact: Most of the Senate majority and leadership knew when they presented the bill for a 3.4% rate that once it passed the Senate it would only be the Senate's first offer in negotiations with the House. In any negotiation - even negotiating with a good-hearted person who'd never be dishonest or abusive - it's a reasonalbe assumption your first offer will not be the same as the final agreement. (Assuming both sides don't have the same goal.) It seems hard to imagine the House would be the most cooperative team on the other side of a negotiation table. What was the Senate doing?
According to the NY Times, under the deal,
Undergraduates would pay the 10-year Treasury note rate, 2.49 percent on Wednesday, plus 2.05 percent, with a cap of 8.25 percent... Graduate students would pay the 10-year Treasury rate plus 3.6 percent, with a cap of 9.5 percent.
That is, unless another economic crisis drives down rates, undergrads pay a
minimum of 4.54%, graduate students would pay a minimum of 6.09%, and loans to parents would have a minimum rate of 7.09%. In a severe enough economic crisis, Treasury rates could drop to 1.35%, which would leave undergraduates with a 3.4% interest rate, but little chance of a job. Over the coming period, Treasury rates are expected to rise - making student loans more expensive. Students may very well end up paying
more than the 6.8% we've been fighting to reverse. Who was the Senate majority negotiating on behalf of?
The Times states, "the Senate proposal hews closely to the one the House approved in May". The Senate leadership not only did not start with a good first negotiating offer, the "compromise" isn't even halfway between the Senate and House bills. For those who have not been comatose for the last few years, it should not come as a surprise the House would not seek a neighborly midpoint agreement. Which returns us to the Senate majority's bill which they knew would be their first offer. Whether or not she viewed it that way, Sen. Elizabeth Warren had proposed a much better first negotiating offer - charging students the same rate the Fed charges big banks. It could have been an effective narrative - presenting it as fair to charge the same rate to the two groups (especially with public sentiment more favorable to students than the banks). This would have begun Senate-House negotiations with a proposal more favorable to students and parents.
Of course, it's possible the House would never accept any bill better than the deal reported by the NY Times. If so, this is a matter the Democrats should be addressing. After the 2010 election, Republicans weren't shy about hollering that voters had given them a majority in the House, so every wacko scheme they suggested everyone else should blindly accept. In 2012, (after extensive efforts by the GOP to exclude as many non-GOP voters as possible) voters elected a Democratic President, maintained a Democratic majority in the Senate and would have created a (small) Democratic majority in the House if it hadn't been for gerrymandering. If the House - run by a political minority - insists on always getting their way, this has to be a big public issue.
A thought on stronger negotiation by the people who won the last elections: Tell Republicans in the Senate and House that if the losers of the last election are going to take advantage of their gerrymandered posts and not negotiate in a reasonable way, the Senate majority will change the filibuster rules so they can't play hardball there. But tough negotiation just doesn't seem to be in the majority's plans.
The strange thing is, it doesn't seem the Democrats are in a bad position to negotiate as far as the public is concerned. The Times tells us that when the 3.4% rate was approaching expiration in 2012, "just two days before the expiration date, Republicans buckled under pressure and extended the fixed rate for one year." That is, they didn't dare raise the rate in an election year. Granted, 2013 isn't a federal election year, but does that mean the majority party couldn't have gotten more leverage?
Another point on negotiations. The Times also says, "House Republicans passed their plan in May and then went on the offensive against Democrats". Republicans will go on the offensive - even knowing the voters rejected them and the public was so strongly against raising student loan rates that they didn't dare do it in an election year. The majority party wouldn't even make a first negotiating offer that was better than what students had in June.
They're not that stupid. They're not anxious enough to raise money for the federal government through loans to charge 4.5% - 7% to big business. They just have one agenda for the 1% and another for the 99%.
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Let's consider some more bargaining strategy.
Personally, I'd like to see free tuition for all qualified students as some countries have. Or at worst, student loans at an interest rate from which nobody collects a profit. But we're not talking about what policies I favor here. What might Democrats have done?
We now know what the Senate Democrats are agreeing to, so we know those interest rates are within their acceptability range. The rates they are agreeing to will vary with the Treasury rate, but based on the current Treasury rate the Senate was willing to charge 4.5% for undergrads and more for grad students and parents. We know Treasury rates are expected to rise - making student loans more costly. We know the GOP didn't dare raise student loan rates during the 2012 election year. We know Democrats consider 2014 a strategic Congressional election year. We know in 2012 the GOP only got a House majority as a result of gerrymandering. The fact they have done some effective gerrymandering is a disadvantage for Democrats, but the fact the GOP can't win without gerrymandering also suggests they are potentially vulnerable. So the student loan rate could (have been) a factor in 2014.
With these points in mind, the Senate could have bargained to extend the interest rate for just one year but at the higher fixed rate of (for instance) 5% for undergrads, grads and parents. That would have put a slightly higher rate than the deal for undergrads (that would be a concession to conservatives). But it wouldn't be a variable rate and wouldn't have different rates for undergrads, grads and parents. In 2014, it would be harder for the GOP to demand something even higher. The Democrats could even try to use the campaign to get the GOP to accept a slightly lower rate.
By agreeing in the new deal to a higher rate and a variable rate and different rates for undergrads, grads and parents, they've made it much harder to return to something more like past rates. Even if they decided to negotiate more seriously than they did this year, they might succeed in getting grads and parents charged the same rate as undergrads. Or they might switch back to fixed rates so they couldn't automatically go up. But it would be a much tougher negotiation to reverse all these aspects at once.
The deal has various disadvantages. For instance, by charging different rates to undergrads, grads and parents, it creates the potential to play the different groups against each other. Divide and conquer. Or they could start making it harder for undergrads to get loans in their own name in order to force families to take out the loans at the higher parents rate. They've opened Pandora's box and the results aren't likely to be good (for the 99%).
As I've said before, they're not that stupid. And even if the Senators themselves weren't bright enough, what about their staff advisers, what about the consulting companies they use, what about the DNC experts, etc.? It's just not an accident.