Last week, the House and Senate finally finished what they should have taken care of before July 1st had come and gone. The recent increase of federal student loan rates has now been rolled back to approximately the previous levels available to students and their families.
Two weeks prior, the Senate had established the new rates and rules with a final product that is very similar to what the President and House and Senate Republicans had been asking for over the last year. This was the third bill this month the Senate had put forth to resolve the hike in interest rates, but it is the only one that finally achieved enough votes to pass and then go to the House to take up and review. Key negotiations on this final bill were conducted by Senators Richard Burr (R-NC), Tom Coburn (R-OK), Tom Harkin (D-IA) and Joe Manchin (D-WV).
Last Wednesday (24 July), the House completed its review and passed the Senate Bill with extensive bipartisan support; the vote was 392-31. It is now being drafted for the White House and President Obama is expected to sign it this week. House Speaker Boehner (R-OH) stated that this new bill will mean “more certainty and more opportunities for students to take advantage of.” Minority Leader Nancy Pelosi (D-CA) praised her fellow Congressmen saying “Today, the House acted in a bipartisan way to keep college within reach for America’s best and brightest.”
Although many Congressmen and Senators are still leery of tying future interest rates to the financial market, this is what the final product established. As the economy improves, the rates on Stafford Loans will begin to rise. As the economy contracts, interest rates decrease so that students will have a chance to continue their education.
Now and retroactively back to 1 July, the rates for Stafford Loans for this school year are now set at 3.86 percent for undergraduates. Graduate students will see their loans now set at 5.42 percent. Parents who take out the loan for their children will pay a rate of 6.4 percent. These loan rates will not change, but loans taken out in later years may be slightly higher or lower depending on the interest rate for 10 year Treasury Notes.
The concern that Democrat lawmakers expressed with this plan was that as rates began to rise, some family’s income would not catch up in time to pay for college or be able to qualify for the higher interest rates. Once interest rate caps were established in the Senate bill, these concerns were, for the most part, sufficiently addressed and it finally gained enough support to pass. These caps are 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for parents.
This final bill now waiting for the President’s signature was very close in structure and numbers to what he had proposed last year in his budget and the House had been arguing for as well. In fact, House Leader Boehner could not resist a dig at his colleagues across the aisle when he announced the bill’s passing. “Democrats who run Washington did the right thing by finally agreeing to these long-term reforms, which first passed the House in May as part of the Republicans’ job plan.”
Perhaps the key provision is that Congress actually is removed from the interest rate process now. Previously, interest rates were established annually by the House and would have to be adjusted legislatively whenever the nation’s economy improved or contracted. Failure to adjust (like this year) meant that rates were decidedly unfavorable to middle and lower income families struggling to pay their bills and still qualify for federal student loans. Now, further adjustment can be considered as interfering in the process and putting families as risk for short-term political gain.
John Kline (R-MN), the Chairman of the Education Committee, was very pleased with the new system, stating that “We wanted to get out of the partisan squabbling that has been happening in this city every year – let the market do it in a way that is fair to students and the taxpayer.” The senior Democrat on the Education and the Workforce Committee, George Miller (D-CA) agreed, saying on July 31st that “This bill provides American college students immediate debt relief on upcoming student loans. Families battered by the recent recession should have received this relief over a month ago.”
The true beneficiary out of all this is you of course. If you have any questions on the new rates or rules, please contact us at Student Debt Relief for more information and check in with us at our new website to stay up to date on the latest information.