House Advances Student Loan Interest Rate Bill
May 23, 2013
Today, the U.S. House of Representative passed a bill that seeks to create a long term solution on student loan interest rates, reports The Hill. The Smarter Solutions for Students Act (H.R. 1911) would switch to a market-based formula for setting rates, similar to the president’s budget proposal for 2014.
The interest rate for subsidized Stafford loans is set to double to from 3.4 to 6.8 percent on July 1 if Congress fails to act on an alternative plan.
The proposed legislation would tie the interest rates on student loans to 10-year Treasury bills plus 2.5 percentage points for Stafford loans for undergraduates, and plus 4.5 percentage points for PLUS loans for parents and graduate students. The interest rate would vary with the broader market rates over the life of the loan. Rates would be capped at 8.5 percent for Stafford loans and 10.5 percent for PLUS loans.
The measure faces strong opposition from Congressional Democrats, who argue for a plan “ outlined in a Senate bill targeting the interest rate issue (S. 953) “ that would keep interest rates at their current levels for the next two years, as Congress works to reauthorize the Higher Education Act.
The House Committee on Education and the Workforce approved the legislation late last week amid heated debates. Ranking Democrat on the committee Rep. George Miller of California said that the bill offered a “classic bait and switch,” promising borrowers low rates, then raising them when market rates increase, according to the Chronicle of Higher Education. He and other Democrats argued that the bill bore little resemblance to the president’s plan since it would reset rates annually, rather than fixing them for the duration of each loan.
On Wednesday, President Obama promised to veto the House measure if the bill advances in its current form. The administration’s policy statement argued that a truly variable rate was unacceptable and cited concerns that the plan would “create uncertainty and lessen transparency” for students and their families and would particularly hurt low- and middle-income families struggling to finance a college education.
The White House statement also said that President Obama objected to the House plan because it would not allow all borrowers to take advantage of new repayment options and because it would use any money saved to reduce the federal budget deficit.
In addition to the interest rate legislation, the House education panel also approved the Investigating Postsecondary Education Data for Students Act (H.R. 1949), which would require a Congressional advisory committee to study the feasibility of reporting students’ postgraduate earnings and other outcomes data. The bill, introduced by Rep. Luke A. Messer (R-IN), is a response to bipartisan Senate legislationthat would link individual student records to wage data in an effort to better inform prospective students about their college choices.
Related Links:
The Hill
The Chronicle of Higher Education
https://chronicle.com/article/House-Panel-Approves-Market/139341/?cid=at&utm_source=at&utm_medium=en
Inside Higher Ed
Michelle Cormier Mott
share