WASHINGTON — One year after passing a short-term student loan interest rate fix, Congress is now faced with doing it again: Unless lawmakers act, the 3.4 percent interest rate on federally-subsidized loans will double on July 1.
With that in mind, Rep. John Kline and Republican members of his House Education and Workforce Committee introduced their student loan interest rate plan last week, one meant to fix the situation once and for all by tying the interest rate to the one the government pays on its borrowing, essentially turning what is currently a fixed rate loan to one with a variable rate. The bill is fairly similar to a plan proposed by President Obama, indicating there might be an opening for compromise between the White House and the GOP.
With that in mind, the Christian Science Monitor looked at three questions facing interest rate negotiators and outlined the differences between Kline’s proposal and those from other lawmakers:
- How “variable” should the rates be? The Obama administration (which the Senate Republican bill closely resembles) would set the rate anew each year, but for the borrower that rate would then be fixed. Representative Kline’s proposal would vary the rate of the loan yearly for the life of the loan.
- How many different loan types should there be? Currently, the three major programs are subsidized Stafford loans, at 3.4 percent; unsubsidized Stafford loans, at 6.8 percent; and PLUS loans for parents, at 7.9 percent. Under Kline’s proposal, the unsubsidized and subsidized programs would be combined at a rate of the 10-year treasury plus 2.5 percentage points; PLUS loans would tack on 4.5 percentage points to the treasury. President Obama’s plan would keep the three loans separate, tacking on 0.93 percentage points, 2.93, and 3.93, respectively. (For more comparison of the plans, see Inside Higher Ed.)
- Should the rates have a cap? Kline’s bill would cap Stafford at 8.5 percent and PLUS at 10.5 percent. Mr. Obama’s proposal doesn’t include caps, because the administration argues that makes loans more expensive – and students have repayment options that cap their monthly payment in relation to their income and that eventually forgive remaining debt.
Congress has about six weeks to work through the muck and come to some type of compromise, but that seems much more likely this year than last. In 2012, with an election on the horizon, neither side seemed interested in compromising with the other until they agreed on a last-minute one-year extension of the lower rates, delaying heavy lifting on the matter until now.
That doesn’t mean there aren’t differences to be worked out. The White House told the New York Times last week, “We have concerns about an approach that both fails to guarantee low rates for students on July 1 and asks too many of them to bear the burden of deficit reduction through unaffordable rates.” And the Education and Workforce Committee Democrats were less charitable, calling the Republican plan, “a classic bait-and-switch.”
But in the end, there are a handful of reasonably similar plans on the table, which means we're a lot closer to compromise this time around.
Devin Henry can be reached at dhenry@minnpost.com. Follow him on Twitter: @dhenry