Mothers Like Low Interest Rates for Student Loans
President Obama and House Republicans seek a long-term fix to the federal student loan rate problem. Without Congressional action, subsidized Stafford federal student loan rates will double to 6.8% on July 1. Last year, Congress extended the deadline that would have mandated federal interest rates to rise from 3.4% to 6.8%, effectively punting the issue down the road one year.
Here is a brief summary of the four proposed solutions on the table:
1. President Obama's Fiscal Year 2014 Budget Request: Employs a market-based solution for setting the federal student loan interest rates. Subsidized Stafford loan rates would be equal to the 10-year Treasury rate plus 0.93 percentage points; unsubsidized Stafford loans would be the Treasury rate plus 2.93 percentage points; Parent-PLUS loans would be the Treasury rate plus 3.93 percentage points.
2. House Resolution 1911: Co-sponsored by US. Rep. John Kline (R-MN) and U.S. Rep. Virginia Foxx (R-NC), the Smarter Solutions for Students Act also employs a market-based solution to determine the federal student loan interest rates. Subsidized and unsubsidized Stafford loan rates would be equal to the 10-year Treasury rate plus 2.5 percentage points; Parent-PLUS loans would be the Treasury rate plus 4.5 percentage points.
3. Bank on Students Loan Fairness Act: Sponsored by U.S. Sen. Elizabeth Warren (D-MASS), this proposed bill employs another short-term solution for setting the federal student loan interest rates. Under this proposal, subsidized Stafford loan rates would be equal to the same rate that the U.S. government lends money to U.S. banks through the Federal Reserve discount window, or 0.75%, for a period of one year. Her bill does not specifically address unsubsidized Stafford or Parent-PLUS loans.
4. The Responsible Student Loan Solutions Act: Co-sponsored by U.S. Sen. Jack Reed (D-RI) and U.S. Sen. Dick Durbin (D-IL), this proposed bill would tie federal student loan interest rates to the rate of a 91-day Treasury bill, plus a percentage determined by the Secretary of Education to cover the costs of administering the program, thereby making the program "revenue neutral." Like H.R. 1911 and President Obama's proposals, this would also be a market-based solution.
Happy Mother's Day!