(CROSSTALK)

JAMES: Only new loans. Nobody is getting a rate cut on anything. And even on the new loans, going forward, it's not everybody. It's not all categories of student loans. But it's enough. And under budget rules, it's six billion next year and if this 3.4 percent rate gets capped, it'll be a lot more in the future.

GIGOT: If it's capped for one year, as the proposal would do, probably going to be very hard to ever raise, is it not?

FREEMAN: That's the danger, if this becomes a part of this Washington herd of sacred cattle where the 3.4 percent raise becomes a basic American right. And look an at Uncle Sam borrowing for the long term at 3.1, let's say interest rates spike, taxpayers could be losing on every loan even before the inevitable default.

GIGOT: So you already have default risk. That means students won't pay the loans back, on a trillion dollars worth of student debt, about $900 billion of that, now government loans. This adds credit risk. Explain to viewers what that means?

FREEMAN: You've got the credit risk because the government doesn't check your FICO score and other things the way they would on a different type of loan. It's a big market, bigger now than credit cards and auto loans. Now it's adding the interest rate risk, which is, if we say 3.4 percent student loans are now the new American right, and that's clearly what President Obama wants to do -- you look at these speeches he's giving, and he talks about it as a necessity, this student funding program. If those -- if interest rates -- if the government is borrowing at higher rates than they have to offer the kids, it's a guaranteed loser.

GIGOT: The secret winner here, Jason, are colleges, aren't they?

RILEY: Exactly.

(LAUGHTER)

And tuitions have been outpacing inflation for three decades. And one of the reasons is because every time these subsidies increase, the schools see it as a green light to raise their prices. And that's exactly what they'll continue doing.

GIGOT: Kim, why are House Republicans being dragged along with this?

STRASSEL: Well, again, what you've got here is a newly minted punitive GOP nominee, Mitt Romney. For them -- he came out and said he was for capping the rates. And to have gone against him would have been a huge embarrassment to their new standard bearer of the party. They decided to fold the fight. Now it's over how you pay for it. The question is, do you strip the money, as the Republicans would like, out of the health care bill, and do you do what the Democrats are proposing again and again and again and again, which is to tax wealthier Americans to pay for it?

GIGOT: The big problem it seems to me, James, is the loan guarantees. They're a free lunch for politicians because they don't have any cost at first. They don't appear to have costs except when they go bad.

FREEMAN: Right.

(CROSSTALK)

GIGOT: And then you pay -- some future Congress and --

(CROSSTALK)

FREEMAN: Yes. And it's also -- even -- it's not just that they say it has no costs, and want people to pretend that, they actually pretend, because of bogus accounting, that it makes tons of money.

(LAUGHTER)

That this is a huge winner for the taxpayers. And yet, they had a funny series of letters where the head of the Congressional Budget Office said, well, I know this is bogus accounting, but we've got to do it anyway. It's absurd.

GIGOT: All right.

Still ahead, high unemployment, slow economic growth, a familiar combination, and it may cause French President Nicolas Sarkozy his job. When we come back, French voters face the socialist cliff. Will they jump? And what are the lessons for the United States?

(COMMERCIAL BREAK)

GIGOT: A struggling economy and high unemployment led Nicolas Sarkozy to a second-place finish in the first round of voting in France's presidential election on Sunday. Mr. Sarkozy is the first incumbent French president to lose a first-round vote in the modern era, finishing behind Socialist Party nominee, Francois Hollande. The two now face off in a May 6th runoff.

Wall Street Journal foreign affairs columnist, Bret Stephens; and editorial board member, Matt Kaminski, joins us with more.

Matt, what difference will it make if France elects a Socialist as president?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: I think the markets will tumble in 30 days. Hollande has promised to tax the rich to the hilt and all kinds of socialist --

(CROSSTALK)

GIGOT: Seventy-five percent marginal rate.

KAMINSKI: But to be fair, Sarkozy has been saying the same things, too. He ran as a very centrist, market reformer. And he's sort of lost his way. And I'm not sure -- I think Hollande may dabble in some of this stuff early on and may end up getting a visit from his minister of finance --

(LAUGHTER)

KAMINSKI: -- saying you can't do this. And in a way, you know, France needs a change. And Sarkozy has been a disappointment in many ways.

GIGOT: You mean a change psychologically?

KAMINSKI: A change of leadership. And I'm not sure that Hollande is the French Tony Blair, much less Margaret Thatcher. And I'm not so sure -- I'm not as worried as some people that France will go off the cliff here.

GIGOT: What's the implications, Bret, for the larger Euro crisis that they see if Hollande gets elected?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: France is the fifth-largest economy in the world. It's the second-largest in Europe. It was, until about a year ago, when people started discovering the depths of French problems, considered one of the functioning motors of the European economy, bailing out the little Greeces, Portugals, even Italys and Spains. If France begins to fail, the whole Euro project begins to fail.

What's really frightening, Paul, and the attacks on both Sarkozy and Francois Hollande on the independence of the European Central Bank, the calls for them to ease up even further on their lending, and essentially to debase the Euro as a way of getting themselves out of their mounting debts.

GIGOT: Inflate. Inflate.

HENNINGER: Inflate indeed, and spend. We have gotten -- the debate has actually gotten around to a point where we can understand the real divisions. The European Central Bank president, Mario Draghi, gave a speech this week in which he said, spending alone is not sufficient to produce growth. Francois Hollande is getting credit for favoring growth. He means public spending.

(CROSSTALK)