Will Congress roll back last week's increase in student loan rates?
This article first appeared in the St. Louis Beacon: WASHINGTON – There was plenty of talk but no action when the Senate failed to vote on the student loan issue before heading out of town for the Fourth of July week. As a result, the interest rate on new subsidized Stafford Loans doubled last week.
But there is still a possibility that Congress might act to stop or limit that increase (to 6.8 percent) retroactively in the weeks before lawmakers depart on their August vacation – the month when an estimated 7 million new student loans start kicking in.
What are the chances for a compromise bill that could be reconciled with a House-passed version and signed by President Barack Obama? That depends on whom you ask.
“Now is the time for Congress to pass a bipartisan, common-sense solution that will give students more long-term certainty and access to lower rates,” said U.S. Sen. Roy Blunt, R-Mo., this week.
Blunt, a former history teacher who later served as president of Southwest Baptist University in Bolivar, Mo., backs a Senate Republican plan that would peg interest rates on Stafford and PLUS loans to the 10-year Treasury bill rate, plus 3 percentage points – and make those rates fixed rather than adjustable.
The Senate defeated that plan on July 6 by a 57-40 vote, but it may be the GOP starting point for negotiating a compromise.
Missouri’s senior senator, U.S. Sen. Claire McCaskill, D-Mo., also says she wants to see a compromise before the August recess. But she supports a Democratic alternative, championed by U.S. Sens. Jack Reed, D-R.I., and Dick Durbin, D-Ill.
That bill, called the Responsible Student Loans Solutions Act, would peg new student loan rates to the 3-month Treasury bill rate (lower than the 10-year rate), plus a percentage that the Education secretary would set to cover administrative expenses. That would result in a lower rate than the Senate GOP alternative, but – unlike the Republican bill – it would allow interest rates to vary over the life of the loan.
While Republicans want the student-loan legislation to pay in effect for itself, Democrats are seeking to pay for the loan subsidy by getting rid of a tax loophole for the wealthy. The GOP opposes that tax move.
“For thousands of Missouri students, higher education and the economic opportunities that come with it wouldn’t be available if not for affordable student loans,” McCaskill told a student group at the University of Missouri – Columbia last month. “I benefited from student loans, and I’ll fight as hard as I know how to ensure that our kids and grandkids have the same opportunities that we did.”
Senate insiders said this week that they expect an effort over the next two weeks to try to combine element of those rival Senate bills – neither of which by itself could reach the 60-vote threshold needed to stop a filibuster by opponents.
Meanwhile, House Republicans are touting the advantages of a bill the House passed – called the Smarter Solutions for Students Act – that would take another approach to pegging student loan interest rates to the U.S. Treasury rate.
Both subsidized and unsubsidized Stafford Loan interest rates would be linked to the 10-year Treasury interest rate plus 2.5 percentage points, but the House would cap Stafford interest rates at 8.5 percent. Also, it would make interest rates on student loans – which now are fixed at a certain percentage – vary from year to year. (As of Monday, subsidized Stafford loans are capped at 6.8 percent; unsubsidized loans at 8.25 percent.)
“It’s time to stop playing political brinksmanship with the American people and come together to get the job done,” said U.S. Rep. Ann Wagner, R-Ballwin, who voted for the House GOP bill. “The House has acted and it’s past time for Senate Democrats to follow suit.”
But U.S. Rep. William Lacy Clay, D-St. Louis, and most other House Democrats have backed House proposals similar to the Reed-Durbin plan. “Working families are already burdened with a total student loan debt of over $1 trillion. Congress needs to act immediately to prevent the doubling of the interest rate for student loans,” Clay said last month, after voting against the Republican plan.
“We need to preserve a pathway to an affordable higher education for students who are struggling to achieve economic security. That path forward should not include a mountain of new debt to crush their future.”
Complicating the situation, President Barack Obama’s administration has advanced a somewhat different approach. He said the House-passed bill “isn't smart, and it's not fair” – mainly because it fails “to lock in low rates for students next year.”
Instead, the White House would prefer an approach that – unlike the House bill or the Reed-Durbin bill – would keep student loans at a fixed rate of interest, rather than making their rates adjustable. Obama also opposes a rate cap, and his administration has – like the Senate GOP approach – suggested tying the loan rates to the 10-year Treasury rate. The big difference between the White House plan and the Senate Republicans is that Obama would set somewhat lower interest rates for subsidized Stafford loans.
At this point, it is not clear whether Congress will be able reach a compromise on interest rates before the new college school year begins in August or September. Durbin has contended that the main stumbling block is the GOP opposition to paying for lower subsidized rates by closing a tax loophole.
“The Democratic position is: Let’s keep the cost of these student loans reasonable, within the grasp of working families,” Durbin argued last month.
Whatever happens this month, it should be noted that only about a quarter of new student loans – the subsidized Stafford loans – would be directly affected by most of the proposed changes.
But that amounts to millions of new student loans, including a big part of the 57,000 college student loans in Missouri and 337,000 in Illinois that are expected to be signed for the coming school year.
However, the new interest rated would not apply to any of the existing $1 trillion in student loan debt that young people already are paying off.