House Republicans’ Student Loan Interest Bill Actually Not That Bad
Minnesota Congressman John Kline (R-MN), the Chairman of the House Education and the Workforce Committee, and Virginia Foxx (R-NC), Chairwoman of the Subcommittee on Higher Education and Workforce Training, co-introduced legislation yesterday to tackle the upcoming student loan interest rate hike by returning to variable interest rates on student loans. The Smarter Solutions for Students Act, otherwise known as H.R. 1911, seeks to tie the federal student loan interest rate to a market-based interest rate (similar to the plan put forth by President Obama in his Fiscal Year 2014 budget request).
A return to variable interest rates on student loans would be good for students in the short term, while interest rates are low. But if/when the economy finally improves, variable rates are likely to go higher than the fixed rates students are currently getting. Luckily, this bill has caps on how high rates could get (something I believe is really important to protect students).
Among the bill's key provisions:
- Calculates subsidized and unsubsidized Stafford loans using a formula based on the 10-year Treasury Note plus 2.5 percent.
- Calculates graduate and parent PLUS loans using a formula based on the 10-year Treasury Note plus 4.5 percent.
- Resets student loan interest rates once a year.
- Includes a 8.5 percent cap on Stafford Loan interest rates and a 10.5 percent cap on PLUS loans.
Senator Elizabeth Warren's proposal is rather more pro-borrower, but this bill could be a whole lot worse.
Want to learn more?
