The Conservative Papers » Financial

Sanctions Hurting Assad, but Iran is Stepping In

kalel — Thu, 24 May 2012 04:16:13 +0000

Syrian President Bashar Assad is quickly spending through his cash reserves as sanctions choke off many sources of funding, but the regime is getting help from Iran in bolstering finances, CNN has reported.

Bashar Assad

According to intelligence assessment shared with the news network, Assad likely had about $30 billion in cash reserves to spend when unrest and bloodshed began in March 2011. He’s about down to $6 billion to $9 billion.

Officials told CNN that with the war against his own people costing him about $1 billion a month, Assad should have been out of business by the end of the year. However, sources are also telling CNN that he is getting a cash infusion from Iran, funneled in through banks in Lebanon.

The assessment is that Iran’s support, combined with Russia’s political and economic support, could keep Assad going for months to come.

The assistance is just part of how Iran is helping Syria. The Islamic Republic has already provided further aid including small arms and assistance in helping the Syrian government use computer monitoring to root out the opposition using social media and other Internet tools.

The report said that while troops from 19 countries, including the United States, have converged in Jordan for the Eager Lion military exercise, U.S. and Jordanian elite forces are doing additional training to prepare for potential fallout should Syria’s government collapse.

According to CNN, U.S. Army Green Berets are training Jordanian special forces in a number of so called “worst-case scenarios”, including Syria’s chemical and biological weapons falling out of the control of government forces.

The U.S., Jordan and other allies are worried that opposition forces or groups like al Qaeda could seize some partial control of 20 key chemical and biological sites inside Syria.

Meanwhile on Wednesday, Syria’s oil minister blamed international sanctions for shortages of cooking gas and other basic goods.

According to The Associated Press, Minister Sufian Allaw said the measures have bled $4 billion from the nation’s ailing economy. The U.S. ambassador to Damascus, however, denied that the international sanctions are to blame for the shortages facing Syrians.

“Our sanctions purposefully do not target oil and diesel imports, because we know that the Syrian people need both for their day-to-day lives,” Ambassador Robert Ford wrote on the embassy’s Facebook page.

Ford said the government is using fuel imports for its tanks adding, “If the Assad regime decided to cut its military expenditures, more diesel and oil would be available for the Syrian people to use.”

Allaw, who spoke to reporters in Damascus, said sanctions had cost Syria’s oil sector about $4 billion.

Prices for a tank of cooking gas have spiraled to some $25 as shortages have spread across the country. Allaw said Syria’s gas production covers only half of the country’s needs.

He said that officials are seeking imports from countries not party to the sanctions, noting that a Venezuelan tanker carrying 35,000 tons of fuel docked in Syria on Tuesday. Another is supposed to follow.

He said officials were seeking to arrange further gas imports from Algeria and Iran.Popular Posts:

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American Restoration: The Role of Private Equity

kalel — Wed, 23 May 2012 14:20:03 +0000

Making something busted luster again. That’s the basic premise of an innovative television show called American Restoration featured on the History Channel. On the show, people bring their worn, rusted, creaky old stuff from America’s past—stuff like an old Dodge pickup truck, an old Chicago police phone box, or an old slot machine, to Rick Dale and his crew to restore the old item to like-new quality. One of the best episodes is when Rick restores a very special item of Americana—a 1960s NASA helmet.

Private equity firms such as Bain Capital, which was once run by Republican presidential candidate Mitt Romney, are very much in the news again, and they’re a source of great confusion on the part of commentators and the public alike. But all you really need to know to understand what private equity firms do is watch American Restoration.

Private equity firms buy companies. But not just any companies. They don’t buy flourishing companies at peak prices. There’s no profit there. Private equity firms buy companies that are failing or substantially underperforming for some reason—companies with managements that lack the knowledge or capacity, financial, managerial, or otherwise, to turn the companies around. Private equity firms often have that knowledge and capacity.

Because a company bought by a private equity firm is often struggling, the sale price is often fairly low. After all, no one can get a high price for a company heading for mediocrity or closure. And if the private equity firm can use its own expertise and resources to heal the company, then after a few years the company is sold again for a profit.

Maybe the problem is old production methods and a lack of expertise about state-of-the-art processes. Maybe the product line is cluttered but management can’t decide what to keep and what to drop. Maybe the management systems prevent timely decision making. Maybe the company’s financial structure is unsound. In some cases, there may be too many employees or, more often, the wrong employees in terms of skills and aptitudes. Whatever the problems, if under the flaws remains something of real value, then with the right tools, that value can be brought to the surface again. Private equity provides those tools.

Another distinguishing feature of private equity firms is that they raise their own capital. They are primarily risking their own money. However, private equity firms are generally not buy-and-hold investors. They buy, fix, and sell. And when they get it right, the company is better positioned to grow and create new jobs, and the private equity firms can make a lot of money.

But they don’t always make money. Sometimes the company’s problems run too deep, so a company destined for closure still winds up closed. This is a risky businesses, and risk means not just that the profits are uncertain but that losses are occasionally inevitable.

Freud once said that sometimes a cigar is just a cigar. Well, sometimes a failing company is just a failing company, and jobs destined to be lost cannot be saved.

American Restoration is about taking things that still have value and would have more value if repaired and restored, performing the work, and creating the value. What American Restoration does with stuff, private equity firms do with struggling or underperforming companies—turn them into profitable, growing, job-creating companies.

They don’t always succeed. But their very existence and the profits they reportedly make testify that they succeed far more often than they fail, and a lot of Americans can thank their continued employment to the prowess of these American restorers.

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Heritage Interns Bring Conservative Principles to Life: Jesse M. Crosson on Entrepreneurship

kalel — Wed, 23 May 2012 02:19:42 +0000

Each semester, we bring together more than 60 young leaders from across the country to participate in our internship program in DC. They are given the opportunity of practical experience working on policy research, marketing, and business, to training on marketing, blogging, and public speaking. Combine trips to the Pentagon, National Archives, and Mount Vernon with each intern’s individual talents and passion, and each Young Leaders Program graduate will leave Heritage equipped for success.

This semester, we challenged each member in the class to submit a personal story, and bring conservative principles to life. The winning piece is written by Jesse M. Crosson. Congratulations to all participants!

An Inspiring Tale of Good Old Fashioned Entrepreneurship

by Jesse M. Crosson

Baseball great Yogi Berra once advised, “Always go to other people’s funerals; otherwise, they won’t come to yours.” Yogi’s remarks, though often humorous, remind us of a simple-but-monumental truth about human beings: we are often motivated most when our own benefit is at stake.

Conservatives understand this characteristic as an indispensable feature of a prosperous society. That is, without the drive of entrepreneurship, Americans would not enjoy products like the light bulb, iPod, or microwave oven. Yet despite such advances, many on the Left periodically criticize this drive as “greed” and constrict it with suffocating taxes and regulation. So the question arises: how can conservatives effectively respond, without reverting to dry economic explanations about “rational self-interest” and “utility maximization?” The answer: by reminding our fellow Americans of the many inspiring stories of American entrepreneurship—stories which, while beginning with “self-interest,” end with a vast promotion of the common good.

Consider youth pastor David Purdy. For the past 12 years, Pastor Purdy has devoted his life to volunteer work and spiritual guidance in local schools, churches, and other venues across Central Pennsylvania. Yet despite his selflessly philanthropic lifestyle, Pastor Purdy is also a successful businessman.

About six years ago, Pastor Purdy encountered the popular backyard/tailgating game of “cornhole” at a family reunion. Cornhole simply involved tossing cornbags (bean-bags filled with corn) at a hole cut in a board, and the game’s additive simplicity struck Purdy and his wife. Thus, Purdy and his wife decided to purchase a game set for their family and youth group. Cornhole sets were not cheap, however; so, they decided they would make their own. Purdy and his wife knew much more about drills and screws than they did about sewing machines and cloth, so Purdy determined he would purchase only the cornhole bags and make the boards himself.

But Pastor Purdy never bought the bags. Instead, realizing a set of 8 cornhole bags would cost him almost $30 after shipping, he decided to make the bags too. And after a quick trip to Jo-Ann Fabrics and the local feed mill (and an hour-long fight with his seldom-used sewing machine), Purdy found that he could make the bags for only a few dollars. Thus, he decided he would make an extra set of bags, to see if he too could sell them for over $20.

And sell he did.

Indeed, not only did Pastor Purdy sell his extra set, but he sold another, and another. And by the end of the week, he had convinced his wife to spend $100 (not an insignificant amount for a family of four, living on a youth pastor’s salary) for supplies for ten sets of bags. Pastor Purdy sold those too. The sales went so well, in fact, that Purdy set a goal of $1000 profit, in time to pay their upcoming property tax bill. They more than surpassed that goal. Within a few short weeks, Pastor Purdy and his wife created business around the production of cornhole bags.

Five-and-a-half years later, the Purdys’ business, BestCornBags.com, has grown immensely—producing, selling, and shipping thousands of cornbag sets a month. With that remarkable growth, they have extended their prosperity to their community. Their increases in production have benefited their raw-material and shipping providers—in this case, the local feed mill, local farmers, the US Postal Service, FedEx, UPS, duck cloth producers/wholesalers, and, recently, local real-estate agents. And, for our liberal friends, Pastor Purdy’s business has generated thousands of dollars in new tax revenues for the local, PA, and US governments.

But the benefits of Purdy’s business success have extended much further into his community than the typical gains associated with new businesses. With his proceeds, Purdy has donated thousands of dollars to his church and youth group, particularly in creating a new after-school hangout for local students. Furthermore, as perhaps one of the largest contributions of all, BestCornBags has provided gainful summer employment for many college and high-school students. Indeed, not only has the business funded large portions of several college educations (including that of this writer), but his positive-yet-challenging work atmosphere has taught his young workers the value of a hard day’s work—and the satisfaction it can bring.

Clearly, Purdy’s unique business experience has promoted the public good in countless ways. But one cannot forget the beginning of his story: Purdy’s business began with the all-American notion of self-betterment and entrepreneurial spirit. In a word, Purdy, like millions of other American entrepreneurs, began his business with the hope of “making a buck” for his family—to pay that $1000 property tax bill. But, through the miracle of the market, Purdy’s ‘self-interest’ resulted in nothing but positive outcomes for his community.

To be clear, not all stories of entrepreneurship are so positive. Some individuals are, in fact, ruthlessly greedy. But a survey of most American communities reveals that true avarice characterizes only a minority of our country’s entrepreneurship. Instead, it is Purdy’s experience which represents the majority of successful American business stories—self-interest only adding to the public good. And, it is precisely because of the prevalence of stories like Pastor Purdy’s that the US government should loosen its regulations on businesses (and lower taxes for such job-creators). Simply put, these great American entrepreneurs are not the greedy one-percenters that the Left might make them out to be. Rather, they are your cousin, your neighbor—your youth pastor—whose idea and hope for self-betterment resulted in the resounding promotion of America’s welfare.Popular Posts:

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Chart of the Week: Taxes Soaring Past Highest Level Ever

kalel — Sun, 20 May 2012 14:17:31 +0000

Americans are facing an unprecedented $494 billion tax hike on Jan. 1, 2013. It’s been dubbed “Taxmageddon” given the economic devastation it would cause.

Conventional wisdom suggests lawmakers in Washington will wait until the 11th hour to come up with a solution. Fortunately, Speaker John Boehner (R-OH) announced last week he won’t wait for a lame-duck session of Congress. From his speech to the Peter G. Peterson Foundation’s 2012 Fiscal Summit:

Tax hikes destroy jobs – especially an increase on the magnitude set for January 1st. Small businesses need to plan. We shouldn’t wait until New Year’s Eve to give American job creators the confidence that they aren’t going to get hit with a tax hike on New Year’s Day. Any sudden tax hike would hurt our economy, so this fall – before the election – the House of Representatives will vote to stop the largest tax increase in American history.

The bulk of Taxmageddon comes from expiration of the 2001 and 2003 Bush tax cuts, but also means the child tax credit will be cut in half, the Alternative Minimum Tax patches end, the Death Tax returns to its 2001 level, and a handful of new Obamacare tax hikes take effect.

Here’s the outlook under Heritage’s Federal Budget in Pictures:

If this isn’t enough to scare you, then the prospect of waiting until after the November election should be. Here are five good reasons from Heritage’s J.D. Foster why Congress should act now:

Families and small businesses should not be threatened by their own government with a devastating tax hike.
A massive tax hike would obviously devastate the economy in 2013 and beyond, but the uncertainty about how, when, and even whether Congress will prevent Taxmageddon is already adding to the large cloud of uncertainties hanging over the economy, threatening to slow job growth even further.
Congress has no excuse for threatening families and the economy with this tax hike with the entire summer legislative schedule wide open for business.
Many Members of Congress of both parties agree with President Obama on the need for fundamental tax reform. Allowing Taxmageddon to go into effect would raise tax rates while increasing the tax on saving and investment—the opposite of tax reform’s results. Even though positive reforms are extremely unlikely in 2012, Congress can prevent a severe case of sound policy backsliding and create more opportunities for exploring positive options for tax reform in the balance of the year by preventing Taxmageddon quickly.
Elections are referendums on past decisions and on the future direction of the country. Voters should be able to judge performance of their Members on more than just vague assurances. Those favoring raising taxes should have the opportunity to vote their beliefs while challengers announce their fidelity to higher taxes, and likewise for those favoring low taxes and limited government. Citizens can vote their beliefs based on solid information.

Conservatives should applaud Boehner for seeking a solution sooner rather than later. But without action from the do-nothing Senate, there’s little hope of stopping this enormous and unprecedented tax increase before November.Popular Posts:

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Liberals Say Public Broadcasting’s $445 Million Federal Subsidy Is ‘Tiny’

kalel — Sat, 19 May 2012 13:59:22 +0000

NPR, PBS and other public broadcasting outlets are asking taxpayers to fork over $445 million in funding for the next fiscal year. But not if Sen. Jim DeMint (R-SC) and Rep. Doug Lamborn (R-CO) have anything to say about it.

The conservative lawmakers want to defund the Corporation for Public Broadcasting, the steward of the federal government’s “investment” in public radio and TV. Congress created CPB in 1967, and DeMint and Lamborn think it’s time to cut it off from the federal trough. Their move comes as the agency prepares to report to Congress how it could operate without a federal subsidy.

“While so many Americans are making sacrifices around the country to make ends meet, CPB appears unwilling to do the same,” DeMint and Lamborn wrote in a letter to Senate and House appropriators. “Now is the appropriate and necessary time for the government to end taxpayer subsidies for CPB.”

Liberals are fighting back to keep the money flowing. The special-interest group Free Press, which advocates for greater government control over media and the Internet, claims the federal subsidy is necessary to save public-broadcasting jobs.

This tiny federal investment is vital to helping support programming that commercial media won’t showcase and provides an important foundation for stations around the country to build on.

DeMint and Lamborn don’t consider it such a “tiny federal investment,” particularly given the rapid growth of public broadcasting’s federal subsidy in the past decade. Writing on DeMint’s new Pickpocket blog, Amanda Carpenter noted:

Even though media has become more accessible than ever, funding for CPB has exploded. Between 2001 and 2012, the CPB’s appropriated funding escalated by nearly 31 percent, from $340 million to $444.1 million.

This, of course, isn’t the first time public broadcasting faced a fight over its federal subsidy. Previous attempts to cut off funding came in the wake of Juan Williams’ firing from NPRand James O’Keefe’s exposé of an NPR executive’s disparaging remarks about conservatives and Tea Party activists. The funding cut was also part of House Majority Leader Eric Cantor’s YouCut initiative.

The O’Keefe exposé also revealed that NRP’s own senior vice president for fundraising admitted that NPR “would be better off in the long run without federal funding.” More than a year later, the American people are still on the hook.

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NATO Summit 2012: Without New Investment by Europeans, NATO’s Future Is in Doubt

kalel — Fri, 18 May 2012 13:57:26 +0000

At the NATO Summit in Chicago this weekend, leaders will gather to discuss a number of issues facing the alliance. Top of the agenda will be Afghanistan, improving NATO’s military capabilities, and extending NATO’s partnerships with regional and global partners. However, nothing agreed at the summit will matter if America’s European allies do not start spending what is required on defense.

Defense spending inside NATO is increasingly declining. As Libya and other NATO campaigns have demonstrated time and again, Europe relies too much on the U.S. to pick up the slack during alliance operations. This is mainly the result of reduced defense investments by NATO members since the end of the Cold War and the lack of political will to use military capability when and where it is needed.

Since 2008, the 16 European members of NATO have reduced their military spending. Reductions in many NATO countries have exceeded 10 percent. In 2011, just three of the 28 NATO members—the United States, Britain, and Greece—spent the required 2 percent of gross domestic product (GDP) on defense. As expected, France fell below the 2 percent mark in 2011. Even Spain, with the world’s 12th largest economy, spent only 0.9 percent of GDP on defense in 2011.

To put this problem into perspective, New York City spends more on policing ($4.46 billion in fiscal year 2011) than 13 NATO members each spend on their defense.

However, on a positive note, Estonia claims it might reach the 2 percent requirement this year.

At the summit, NATO is expected to unveil a number of “Smart Defense” initiatives to help solve this problem. Smart Defense aims to encourage allies to cooperate in developing, acquiring, and maintaining military capabilities in a more economically efficient manner in an age of defense cuts.

While the aims of Smart Defense are noble, there is a concern that the initiative is likely to amount to little beyond a list of aspirations if Europeans invest no new money in defense. The language describing Smart Defense may read well in a summit declaration, but until real money is invested and delivers real capabilities to the modern-day battlefield, it will be meaningless to the men and women on the front lines. To work, Smart Defense requires real military capability and real money. No clever nomenclature can evade this problem.

Many leaders in Europe say that the first duty of government is the defense of the realm, but few leaders actually implement this view in practice. Spending is about setting national priorities, and Europeans have become complacent about their own defense and overly dependent on the U.S. security umbrella. Sadly, with President Obama’s defense cuts, the U.S. is not leading by example.Popular Posts:

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Arizona Gov. Brewer Expands USA’s Most Innovative School Choice Model

kalel — Thu, 17 May 2012 13:55:49 +0000

Imagine being a child trapped in a failing school in Arizona. Prior to 2011, being trapped in a failing school in Arizona meant being trapped in a failing school in a state that ranks among the worst performing in the country.

But during 2011—the “Year of School Choice”—Arizona led the way in expanding educational options for children outside of the public system. And the Grand Canyon State did so in a major way: by enacting groundbreaking, first-in-the-nation education savings accounts.

Empowerment Scholarship Accounts (ESAs) enable parents of special needs children to leave their assigned public schools, taking with them 90 percent of the state dollars that the schools would have received for their children. That money, deposited into ESAs, can then be used to access a multitude of education options that better met their children’s needs. Funds can be used to pay for private school tuition, online learning, special education services, transportation, and a variety of other education-related expenditures.

Notably, unused ESA funds can be “rolled over” from year to year and can even be invested into 529 college savings accounts. The introduction of ESAs in Arizona has been a tremendous step toward educational customization.

Earlier this week, thanks to the leadership of Governor Jan Brewer (R), the pioneering ESAs were expanded to thousands of additional children throughout the state. Children trapped in schools rated “D” or “F,” children of active-duty military parents, and foster children now have access to ESAs. Thanks to this week’s expansion, 11,500 children of active-duty military families and more than 94,000 students in failing public schools will be eligible for ESAs.

Education researcher Matthew Ladner notes:

The law also moves to a system of formula funding, making it one of the largest private choice laws in the nation with funded eligibility, behind only the new Indiana and Louisiana voucher laws on a percentage basis. The Arizona program now resembles an expanded combination of the Florida McKay and Opportunity Scholarship programs with the 21st Century twist of broadening the options of parents and requiring the consideration of opportunity costs (what you spend now cannot be saved for later).

In the not so distant future, we will be able to…identify Governor Brewer’s term and a half as a turning point for the better.

Brewer’s ESA expansion is another milestone in the ongoing effort among states to provide children educational options outside of their assigned public schools. Years from now, Arizona will be heralded as the state that led the way on truly customizable education that is structured in a way that empowers parents and designed to meet the unique learning needs of individual students.Popular Posts:

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U.K. Commitment to Joint Strike Fighter Vital for the Special Relationship

kalel — Thu, 17 May 2012 01:55:10 +0000

Last week, the British government made a decision to change from the Carrier Variant of the Joint Strike Fighter (JSF) back to the Short Take Off and Vertical Landing (STOVL) variant of the JSF—as was originally planned before its 2010 Strategic Defence and Security Review. While this move was politically challenging for the coalition government in the U.K., it was the right decision. The assumed cost of equipping the U.K.’s new generation of aircraft carriers with catapults and arrestor gear that are required for the Carrier Variant of the JSF increased from £500 million to £2 billion in only 12 months. To place these figures in context, the U.K.’s Foreign Office budget for this year is only £1.6 billion.

So what does this mean from an American perspective? It doesn’t matter to the Pentagon what variant of the JSF the U.K. chooses, as long as the U.K. stays committed to the JSF program. The U.S. should be concerned about the position of the Labour Party, which currently forms the U.K.’s official opposition.

The Labour Party is polling at its highest level since the May 2010 general election, when it was kicked out of government after 13 years. So far, it is unclear whether it would commit to continuing and funding the U.K.’s involvement in the Joint Strike Fighter program if Labour were to form the next U.K. government. This lack of clarity on such an important aspect of the Special Relationship should be a concern for the Department of Defense and Capitol Hill.

As previous Heritage analysis has pointed out, the Joint Strike Fighter program was one of only four areas the U.S. wanted the U.K. to protect from defense cuts. (The other three areas were U.K. Special Forces, the Royal Navy’s Mine Counter Measure Vessels, and Britain’s nuclear deterrent.) An important part of the Special Relationship between the U.S. and the U.K. is close collaboration on, and joint procurement of, military equipment. Since the U.K. is the JSF program’s only Level 1 partner, the JSF program demonstrates how the Special Relationship works in practice.

Flying a fifth-generation fighter, regardless of what variant it might be, will place the U.K. in the premier league of air power capability—ahead of both Russia and China. It is important that, as the program’s only Level 1 partner and for the sake of the Special Relationship, the U.K. stays committed to the JSF program.Popular Posts:

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U.S. Free Trade Agreement with Colombia Enters into Force Today — Finally!

kalel — Wed, 16 May 2012 00:35:09 +0000

Following through on President Obama’s announcement last month in Cartagena that the U.S.–Colombia Trade Promotion Agreement will take effect on May 15, 2012, U.S. Secretary of Agriculture Tom Vilsack made the following statement:

Beginning today, U.S. agricultural exporters receive duty-free access on more than half of the products we currently export to Colombia, and virtually all remaining tariffs will be eliminated within 15 years. Estimates show that the tariff reductions in the U.S.-Colombia Trade Promotion Agreement (FTA) will expand total U.S. exports by more than $1.1 billion, supporting thousands of additional American jobs while increasing U.S. GDP by $2.5 billion.

While this is good news for American workers and the U.S. economy, what the Obama Administration failed to mention was that it had joined with its allies in Congress to block approval of the FTA with Colombia for nearly half a decade. House Ways and Means Trade Subcommittee Chairman Kevin Brady (R–TX) noted that fact in his congratulatory announcement last fall that passage had been “nearly five years in the making.” In that time, the U.S. lost its competitive advantage on billions of dollars of sales to Colombia that U.S. competitors were happy to make up.

The U.S.-based Latin America Trade Coalition reported in September 2011 that, in the years after the U.S.–Colombia agreement was signed in November 2006 until it was finally approved in October 2011, U.S. exporters had to pay over $6 billion in tariffs to the Colombian government that would have been eliminated upon full implementation of the FTA.

In any case, the FTA has finally been implemented, and that must be a good thing, since the far-left guerillas in Colombia chose to “celebrate” the occasion by trying to kill one of former President Alvaro Uribe’s ministers today in a deadly car bombing in Bogotá.

With the FTA now in place, Colombia and the U.S. can look together to ever stronger ties and greater certainty that open markets and freer movements of goods, services, and investments will cement the two democratic nations together. That is reason to celebrate.Popular Posts:

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Obama’s Budget Would Double the Interest Rate on Student Loans–After the Election

kalel — Tue, 15 May 2012 04:19:43 +0000

President Barack Obama delivers the commence address at Barnard College, Monday, May 14, 2012, in New York. (AP Photo/Pablo Martinez Monsivais)

(CNSNews.com) – President Obama’s fiscal 2013 budget proposal would double the interest rate on federally backed student loans from 3.4 percent to 6.8 percent–eight months after the November presidential election.

The White House fiscal year 2013 plan calls for maintaining the current 3.4 percent interest rate for federally guaranteed student loans, but only through July 1, 2013, at which point it would automatically increase to 6.8 percent. Neither the president’s plan nor the Democrats’ legislation would extend the low rate beyond another year.

The president’s budget calls for “Suspending an Increase in Student Loan Interest Rates.” (See page 97).

“Under current law, interest rates on subsidized Stafford loans are slated to rise this summer [July 1] from 3.4 percent to 6.8 percent,” reads the Obama budget. “At a time when the economy is still recovering and market interest rates remain low, it makes no sense to double rates on student loans. The Budget suspends the scheduled increase for the coming year, so that rates will remain at 3.4 percent.”

The Senate bill favored by Democrats states, “in the matter preceding clause (i), by striking ‘and before July 1, 2012,’ and inserting `and before July 1, 2013.’”

The Republican alternative legislation would also extend the low rate for only another year.

Subsidized Stafford Loans are only available to students who demonstrate financial need. Starting in July, these loans will only be available to undergraduate students. The federal government does not require the borrower to pay the interest that accrues while the borrower is in school.

During the 2006-2007 and 2007-2008 academic years, Stafford Loans to undergraduate students were offered with a fixed rate of 6.8 percent. The College Cost Reduction and Access Act of 2007 set lower interest rates for students in the 2008-2009 through 2011-2012 academic years. The interest rate for loans during those years gradually declined to 3.4 percent. An interest rate reduction would benefit about 7.4 million students, according to the Congressional Research Service (CRS).

Prior to those changes, interest rates had been as high as 8.02 percent in the 2007-2008 academic year and as low as 2.36 percent in the 2011-2012 academic year, according to the CRS report.

“The minimum monthly payment according to a standard repayment plan is $50, which may result in a loan being repaid in less than 10 years,” the May 4 CRS report said. “However, most borrowers obtain more than one loan resulting in the combined repayment amount being more than $50 and sufficient to result in a full 10-year amortization. For purposes of comparison, these figures are all based on a full 10-year amortization.”

Obama has focused heavily on keeping student loan interest rates down to 3.4 percent in some of his recent speeches on college campuses. The youth vote helped boost his victory in 2008, where he beat John McCain by 34 percent among voters under 30, according to the Associated Press. However, last month a Harvard poll found that this year Obama is leading his Republican opponent Mitt Romney by 12 points (41%-29%) among voters aged 18 to 24.Popular Posts:

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