It has been an ugly couple of weeks in trying to get legislation passed to prevent an automatic increase of federal student loan interest rates. Both houses of Congress are fighting each other and neither political party seems to want to work with the White House on this issue. In other words, it’s June in Washington D.C.
Part of the problem is that over in the Senate, Democrats are trying to pass their plan which extends the current interest rates for two years. Unfortunately, their plan does not resemble the White House idea at all. This is the one put forth in President Obama’s 2014 Budget proposal; in an unusual twist, his solution actually resembles the Senate Republican version which the Democrats have come out very publicly against.
The Senate Republican and White House plans both peg future interest rates to the market. Neither plan places a cap on the interest rates for when the economy improves; allowing the top rate a student will pay to be (conceivably) unlimited. Both also use the 10 year Treasury Note as a basis for their projected interest rates. The Republican plan takes the 10 Year Rate +3 points and applies it to all federal student loans. The White House version takes the 10 Year Rate +.93 points for subsidized Stafford loans, +2.93 points for unsubsidized Stafford loans and +3.93 points for PLUS loans to students in graduate programs. As you can see, the rates are fairly close and should invite a compromise.
It is because neither plan places a cap on the rates a student can pay, that Senate Democrats have publicly rejected the Senate Republican plan and privately shared the same reasoning with the White House. Both of these plans instead rely on the Income Based Repayment Program to provide relief to students who find themselves unable to repay their federal loans. Most Senate Democrats believe that this does not adequately address the problem of increasing student debt and merely pushes the actual problem of repaying these loans to another Congress to deal with while giving cover with voters to those who support these changes.
Cracks are beginning to show in the public support for President Obama though. Senator Durbin (D-IL) said earlier this month to a reporter that he does not support the President’s plan, but did not draw comparisons to what the Senate Republicans offered. Last week, on the floor of the Senate, Senator Warren (D-MA) rejected the President’s plan when it was offered up by Senator Burr (R-NC). In her rejection, Warren stated that the Senate Republican plan would create an inordinate amount of profit on a group of people struggling to pay their bills. This would be the same case with the President’s plan, but she did not specifically state that. Earlier, she offered her own bill which puts federal student loan rates at the same number which is offered to banking institutions from the Federal Reserve, 0.75%. It was rejected just as quickly. It should be noted that no Senate Democrat has offered up the President’s plan for discussion.
The only item that all three groups seem to be in complete agreement on is their rejection of the plan issued from the House of Representative Republicans. Although the House plan does peg the student loan interest rates to the market, it does not lock interest rates for the length of the loan.
Under the House Republican plan, a student could take out his loan as a freshman at a 3 percent interest rate. However, if rates do increase, this student could wind up paying 9 percent interest by the time he graduates and begins to repay the loan. Senate leadership in both parties has stated there will be no bill resembling this option and President Obama has already publicly threatened a veto.
There are now less than two weeks before federal student loan interest rates double and the Congress breaks for the Fourth of July holiday. If you are one of those students or parents who will be taking out education loans for college next year, Student Debt Relief strongly encourages you to contact your Senators and Representatives and push them to get this resolved. Come back here to www.studentdebtrelief.us to stay updated on the latest information out of D.C.