Why the student loan interest rate hike isn't that big a deal

FORTUNE -- For all the gripes over the costs of student loans, there may be fewer reasons to worry about this week's doubling of interest rates on subsidized Stafford loans than you might think.

On Monday, rates surged to 6.8% after Congress couldn't agree how to keep them from rising. Despite the bad news that the hike could cost average student borrowers an additional $2,600 over 10 years (or an extra $21 a month), it doesn't really affect anyone -- at least not yet. The hike applies to loans issued after July 1, 2013. Students typically sign their loan documents when they return to campus in the fall.

That doesn't leave Congress much time, though -- if lawmakers can't get their act together this summer student borrowers will certainly pay more than previous graduates.

Congress has pledged to tackle the issue after the July 4th holiday. There are a handful of competing proposals being considered -- most of which urge the government to allow interest rates to fluctuate with the market rather than leaving them fixed and set by a highly politicized Congress. This makes economic sense, since market rates would reflect what it costs the government to lend to students.

MORE: The Fed's magic jobs number

The options include President Obama's and Republicans' push to peg it to the 10-year U.S. Treasury note and U.S. Sen. Elizabeth Warren's (D-MA) proposal to link it to the rate that banks pay to borrow overnight from the Federal Reserve (currently near zero percent). As different as the proposals might look, the costs to students differ very little, at least over the next four years, says Beth Akers, an education policy fellow at Brookings Institution, a Washington DC-based think tank. She thinks the hype over interest rates is overplayed.

Akers developed a calculator that shows how much the six options on the table would cost an average borrower each month. This includes the most costly option: If the rate stays at 6.8%, the average borrower with $27,000 in federal student loan debt (the maximum allowable for both subsidized and unsubsidized loans) would pay $327.47 a month. That's high, but it's only a $46.93 difference from the most generous proposal under Obama's plan, which would peg rates to the 10-year note plus 0.93 percentage points.

A lot of things could change over the next few years, but Akers' conclusions are worth looking at; they factor in the likelihood that yields on Treasuries will continue rising over the next few years.

What's perhaps most unexpected is that it makes little difference even if Congress passes Warren's bold proposal, which is highly unlikely. The Massachusetts senator wants to match interest rates charged on student loans to the super-low rate of 0.75% that the Federal Reserve offers banks for overnight loans. This would only last for a year, though. After that, rates would rise to 6.8%. So borrowers would pay $313.90 a month, only slightly less than the $327 a month if rates stayed at 6.8%.

MORE: Only the wealthy feel economic recovery

In fairness, Warren's proposal might make sense for anyone who thinks that struggling student borrowers entering a rough job market should enjoy the same cheap rates as banks. Pragmatically, though, it's right to label it gimmicky at best, since it makes little financial sense. The discount rate offered to banks reflects the risks involved; such loans span nowhere near the average 10-year life of a student loan.

Even if it makes more sense to match interest rates for student loans to the 10-year note, the cost differences are minimal under Warren's proposal. Which is why interest rates aren't as big a deal as the media and lawmakers would have us think.

What matters, Akers adds, is not what kind of savings student borrowers gets from interest rates. Democrats may want rates to return to 3.4%, but most students are unlikely to notice that kind of savings. However, they'll probably notice if their Pell grant gets bigger.

Correction: An earlier version misstated the monthly costs of a student loan if interest rates remain at 6.8%. It's $327 a month, not $427 a month, according to estimates by Brookings Institution.

Prism implicates Facebook, Yahoo and others in Europe, student group charges

The U.S. government surveillance program known as Prism, which reportedly collects data from major technology companies, has compelled a European student group to file a barrage of complaints against the companies, claiming the data collection runs afoul of European privacy laws.

 

The complaints were recently filed in Ireland against Facebook and Apple, in Luxembourg against Skype and Microsoft, and in Germany against Yahoo. The complaints are directed at the companies' European subsidiaries.

 

The Austrian student group Europe-v-Facebook.org said that while the Prism scandal is playing out in the U.S., "most of the involved companies conduct their business through subsidiaries in the EU in order to avoid U.S. taxes." This means that the companies must abide by European privacy laws, the group said.

 

The basis of the group's complaints concerns how the companies export their user data back to their U.S. counterparts. When a European company sends that data back to its U.S. parent company, that is considered an "export" of the data, the group said, which is only allowed if the subsidiary can ensure an "adequate level or protection" in the foreign country, the group said Wednesday in a statement.

 

However, "after the recent disclosures on the Prism program, such trust in an 'adequate level of protection' by the involved companies can hardly be upheld," the group said.

 

In their privacy policies, some of the largest tech companies say that they will share users' personal information to meet applicable laws, regulations, legal processes or enforceable government requests.

 

Since Prism's revelations have ripped trough the technology industry and the privacy landscape more broadly, companies like Facebook, Google, Twitter and Microsoft have called for greater transparency in disclosure of data on government requests for customer information.

 

Yahoo, for instance, has since disclosed some of its user data requests, but companies have had a harder time clearing the way to specifically reveal requests made under the Foreign Intelligence Surveillance Act (FISA), which has been at the center of the Prism controversy.

 

"For European subsidiaries of the involved companies, American 'gag order' does not apply," the student group said Wednesday, adding, "in contrast to that, the companies are even under an obligation to tell the truth under European proceedings."

 

Germany, Luxembourg and Ireland must now decide whether it is legal for European companies to mass-transfer personal data to a foreign intelligence agency, the group said.

 

"We want a clear statement by the authorities if a European company may simply give foreign intelligence agencies access to its customer data," it said.

 

"If this turns out to be legal, then we might have to change the laws," it added.

 

In recent weeks, Europe's justice commissioner has pledged that Europeans' rights would not be sacrificed for U.S. national security.

 

The student group also seeks more clarity from the tech companies on how they handle users' personal data under European procedures.

 

Facebook, Apple, Microsoft, Skype and Yahoo could not be immediately reached to comment on the complaints.

 

In 2006, E.U. data protection authorities already decided in a case involving the payment processor Swift that a mass transfer of data to the U.S. authorities is illegal under EU law, the student group said.

 

Google and YouTube were not included in the first round of complaints, the group said, because they do not use European intermediaries.

 

"But since Google has data centers in Ireland, Belgium and Finland, we can take similar actions on a slightly different path," they said.

 

Follow me on Twitter @sajilpl

Prism implicates Facebook, Yahoo and others in Europe, student group charges

The U.S. government surveillance program known as Prism, which reportedly collects data from major technology companies, has compelled a European student group to file a barrage of complaints against the companies, claiming the data collection runs afoul of European privacy laws.

 

The complaints were recently filed in Ireland against Facebook and Apple, in Luxembourg against Skype and Microsoft, and in Germany against Yahoo. The complaints are directed at the companies’ European subsidiaries.

 

The Austrian student group Europe-v-Facebook.org said that while the Prism scandal is playing out in the U.S., “most of the involved companies conduct their business through subsidiaries in the EU in order to avoid U.S. taxes.” This means that the companies must abide by European privacy laws, the group said.

 

The basis of the group’s complaints concerns how the companies export their user data back to their U.S. counterparts. When a European company sends that data back to its U.S. parent company, that is considered an “export” of the data, the group said, which is only allowed if the subsidiary can ensure an “adequate level or protection” in the foreign country, the group said Wednesday in a statement.

 

However, “after the recent disclosures on the Prism program, such trust in an ‘adequate level of protection’ by the involved companies can hardly be upheld,” the group said.

 

In their privacy policies, some of the largest tech companies say that they will share users’ personal information to meet applicable laws, regulations, legal processes or enforceable government requests.

 

Since Prism’s revelations have ripped trough the technology industry and the privacy landscape more broadly, companies like Facebook, Google, Twitter and Microsoft have called for greater transparency in disclosure of data on government requests for customer information.

 

Yahoo, for instance, has since disclosed some of its user data requests, but companies have had a harder time clearing the way to specifically reveal requests made under the Foreign Intelligence Surveillance Act (FISA), which has been at the center of the Prism controversy.

 

“For European subsidiaries of the involved companies, American ‘gag order’ does not apply,” the student group said Wednesday, adding, “in contrast to that, the companies are even under an obligation to tell the truth under European proceedings.”

 

Germany, Luxembourg and Ireland must now decide whether it is legal for European companies to mass-transfer personal data to a foreign intelligence agency, the group said.

 

“We want a clear statement by the authorities if a European company may simply give foreign intelligence agencies access to its customer data,” it said.

 

“If this turns out to be legal, then we might have to change the laws,” it added.

 

In recent weeks, Europe’s justice commissioner has pledged that Europeans’ rights would not be sacrificed for U.S. national security.

 

The student group also seeks more clarity from the tech companies on how they handle users’ personal data under European procedures.

 

Facebook, Apple, Microsoft, Skype and Yahoo could not be immediately reached to comment on the complaints.

 

In 2006, E.U. data protection authorities already decided in a case involving the payment processor Swift that a mass transfer of data to the U.S. authorities is illegal under EU law, the student group said.

 

Google and YouTube were not included in the first round of complaints, the group said, because they do not use European intermediaries.

 

“But since Google has data centers in Ireland, Belgium and Finland, we can take similar actions on a slightly different path,” they said.