All-Star Panel: The fuzzy math on student loans

This is a rush transcript from "Special Report," July 1, 2013. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: As you look live there on Capitol Hill, it's a pretty empty place. Congress is out on recess, and college students with federal loans left with interest rates doubled. Take a look at this -- 3.4 percent, the old rate, as of today 6.8 percent -- student loan interest rates. The Senate left without dealing with it. The House did pass a bill. We're back with the panel. Steve?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: Well, there has been an interesting Twitter back and forth that's been going on for months where people are using this hash tag "Don't double my rates." I think the long-term answer actually is to double their rates.

We can't have the federal government as involved in subsidizing student loans as we have over the past, you know, decades for the coming future. We need some sort of evening out or I think that we are going to be approaching something like the housing bubble where you take a good idea, which is to encourage people to go to college, as many people as possible to go to college. You give them incentives to do it. The federal government comes in, distorts the market, and then you have some kind of dramatic bubble.

Neal McCluskey, who was featured in Mike Emanuel's piece, has been making this argument for years and I think making it very persuasively.  It's something to be careful of. This is probably not the right way to do it. You don't want to have this kind of shock. And there's no doubt that Congress will come back in and fix this retroactive to July 1 to today.  But in the long term the smarter public policy decision, I think, is to actually let the rates increase.

BAIER: Mara, as you take a look at the bipartisan group that tried to have a plan, Republicans Tom Coburn, Lamar Alexander, Richard Burr as well as Independent Angus King and Democrat Joe Manchin, they offered a permanent fix tying it to the financial markets. Didn't work.

MARA LIASSON, NATIONAL PUBLIC RADIO: No. But you know what's interesting about this, what Steve just outlined might be the conservative principled position. But that's not the position of Republicans on Capitol Hill. This is not a big ideological debate. In the House they passed something almost identical to the president's plan, although they wanted to fluctuate and he wants to tie it to the 10 year treasury rate. But there is no big ideological debate here.  And I think this is a problem that on a policy level could be solved pretty quickly because the gulf isn't that big.

BAIER: Well, where does the fault lie politically when parents go to plan where their kids are going to go?

LIASSON: I think they're going to have a hard time figuring out who to blame except for everybody. I think it's a disgrace. I do think this will be fixed probably retroactively before school starts.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It's a classic example of compassion -- the unintended consequences of compassion. It's a good idea until you realize, you showed earlier on the show, how much tuition has increased. And the reason is you get a huge amount of money from the federal government that, the colleges understand supply and demand, allow them to increase their tuition.

You showed that public institutions increased tuition by 27 percent since 2007, and the more expensive private colleges are about half of that. So essentially it's inflating the budgets of universities, everybody understands that. In fact, Obama mentioned in one of his State of the Union addresses, the kind of attempt to rhetorically demand that colleges roll back tuition. But why should they, his words against a lot of money?  So I think that is the root of the problem. And the other problem is how do you get out of debt with a job? And the prolonged unemployment, the high chronic unemployment, and the fact that youth unemployment is so high is a reason why this is a more crushing debt than it would be in normal conditions.

BAIER: Senate minority leader gave a speech in part about this and said it was tied to ObamaCare. In reality, that's the first place that this was coupled together, the federal student loans in that bill that then became law. So, that was accurate. As far as how it gets solved, probably retroactive when they get back.

HAYES: I'm sure. And Mara is exactly right. And I think you have Republicans who (INAUDIBLE) to make a more principled argument in this case, in part because this is newer, kinder, gentler Republican Party. They want to make life work for people, you know, average voters, try to show people that they care more. So I think they are making an argument that's more expedient and less, I think, likely to produce a solution.

BAIER: But it gets solved?

LIASSON: It gets solved, but you know what, because of this young people aren't buying houses. They aren't getting married. They aren't doing all the things that make for kind of stable relationships and commitments because of this crushing burden of debt.

KRAUTHAMMER: But all of that is also because of absence of a job.

BAIER: That is it for the panel. But stay tuned for one of those studies a tip to make you smarter.

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