WASHINGTON – Students who have accumulated thousands of dollars in college loan debts find themselves caught in a crossfire involving Congress and the White House that ultimately may throw them even further into debt.
In just the most recent example of Capital City dissonance, lawmakers and President Obama have been unable to reach an understanding on setting college loan interest rates in the federally run program. Failing to reach an accord by July 1 will result in a doubling of rates, from 3.4 percent to 6.8 percent, for more than 7.4 million students with federal Stafford loans.
The White House claims failure to act will saddle the average student who has taken out loans to fund his or her higher education with an additional $1,000 in debt. Tuition and fees at public universities have more than doubled over the past 20 years as state financial support has declined. The average student who takes out loans to pay for four years of college graduates now owing more than $26,000.
The debate has degenerated into a back-and-forth over who should get the blame if the issue goes unresolved. Neither side has exhibited any inclination to back down.
“For weeks, President Obama’s been running around ginning up college students and late-night television audiences over an impending interest rate change on college loans — pointing the finger at Republicans,” said Senate Republican Leader Mitch McConnell (Ky.). “But not only are Republicans supportive of solving this problem, we’re the only ones who’ve actually passed legislation to do so.”
But that legislation, passed by the House in late May, “isn’t smart and it’s not fair,” according to President Obama.
“It fails to lock in low rates for students next year,” Obama said. “That’s not smart. It eliminates safeguards for lower-income families. That’s not fair. It could actually cost a freshman starting school this fall more over the next four years than if we did nothing at all and let the interest rates double on July 1.”
If this discussion carries a hint of déjà vu, there’s a reason. Republicans and Democrats bickered over student loan rates for months last year during campaign season before reaching a compromise that offset the $6 billion cost of extending the 3.4 percent rate, initially set in 2007, by limiting the period students remain eligible for federal assistance and altering regulations on pension program funding.
The House-passed measure would reset student loan rates on an annual basis, tying it to the interest rate of a 10-year Treasury note, plus an additional 2.5 percentage points for Stafford loans.
Students would not be afforded the opportunity to lock in rates at any point during the process. The Congressional Budget Office estimates that rates on Stafford loans would reach 5 percent in 2014 and 7.7 percent in 2023. Ultimately, the Stafford loan rate would be capped at 8.5 percent. Graduate student loans along with those taken out by the parents of students, known as PLUS loans, would have a 10.5 percent cap.
Supporters, primarily Republicans, maintain the House bill will cut the deficit by $3.7 billion over 10 years.
Meanwhile, the Democrat-controlled Senate is poised to consider an alternative that would simply extend the current 3.4 percent rate for two more years, offsetting the $8.3 billion cost by closing various tax loopholes.
That’s unlikely to make it past Senate Republicans. Sen. Lamar Alexander (R-Tenn.), ranking member on the Senate Health, Education, Labor and Pensions Committee, said GOP lawmakers favor the House approach.
“Senate Republicans support a permanent solution that will reduce interest rates for 100 percent of new student loans, not a short-term political fix that reduces rates for 40 percent of new loans,” he said. “This would be fair to students and fair to taxpayers.”
On Thursday, Senate Democrats shot down a bill from Alexander and Sens. Tom Coburn (R-Okla.), Richard Burr (R-N.C.), and Johnny Isakson (R-Ga.) that would have required that, for each academic year, all newly issued Stafford, Graduate PLUS, and Parent PLUS loans be set to the U.S. Treasury 10-year borrowing rate plus 3 percentage points. It would have lowered the interest rate for this coming school year for all newly issued federal student loans to a fixed rate of 4.75 percent, based on the May 15 auction rate of 1.75 percent.
“Our proposal is fair, equitable and treats everyone alike by lowering interest rates on 100 percent of student federal loans at a fixed rate,” Isakson said. “It’s the right way to address the student loan program, and it’s unfortunate that Senate Democrats blocked a bill that takes an approach very similar to the president’s student loan proposal.”
Republicans also blocked the Democrats’ proposal.
“Refusing to extend low student loan interest rates for college students is effectively voting to raise taxes on low-income students and their families who are investing in higher education and working to strengthen our country’s economic future,” said Sen. Patty Murray (D-Wash.).
Sens. Joe Manchin (D-W.Va.) and Angus King (I-Maine) voted against proceeding on either the GOP or Democratic bill.
“Senator King and I are determined to work with our colleagues to come up with a stronger, comprehensive student loan package before the July 1st deadline,” Manchin said.
The White House is advocating a different plan, agreeing with the House to tie rates to the 10-year Treasury note but permitting students to lock in a rate. Unlike the House plan, Obama doesn’t include a cap.
“Higher education cannot be a luxury for a privileged few,” Obama said. “It is an economic necessity that every family should be able to afford, every young person with dreams and ambition should be able to access. And now is not the time for us to turn back on young people. Now is not the time to slash the investments that help us grow.”
McConnell responded by saying congressional Republicans “are the only ones actually working to solve the student loan issue” and that the president “has been totally AWOL.”
“All he has to do is pick up the phone and tell us which of his own proposals he’ll accept,” McConnell said. “It’s that easy. But the truth is, the president doesn’t really want to solve this problem. He seems to prefer the talking point, as disingenuous as it is.”