The Clock Ticks On
Time's up!. As expected, interest rates for new subsidized federal student loans rose this morning from 3.4 percent to 6.8 percent as Congress adjourned for its Independence Day break without reaching a compromise. Despite missing the deadline, Congress still has time to fix the issue before students begin classes in the fall and apply the fix retroactively. However, if Congress fails to find a solution prior to its August recess, significant problems for students could be the result. So how did we get here and which proposed solutions have a chance of passage?
The Student Loan Affordability Act (S. 953), sponsored by U.S. Senator Jack Reed (D-RI), would have extended the 3.4% rate for an additional two years while Congress works on a long-term solution to slow the rapid accumulation of student loan debt. The Comprehensive Student Loan Protection Act (S. 1003), co-sponsored by U.S. Senators Tom Coburn (R-OK), Richard Burr (R-NC), and Lamar Alexander (R-TN), would have required that for each academic year, all newly-issued Stafford, Graduate PLUS, and Parent PLUS loans would be set to the U.S. Treasury 10-year borrowing rate plus 3 percentage points. It also directed any remaining savings to the Treasury for the purpose of deficit reduction. Two proposed solutions to the current student loan crisis - both defeated along party lines.
The Smarter Solutions for Students Act (H.R. 1911), co-sponsored by US. Representatives John Kline (R-MN) and Virginia Foxx (R-NC), passed the House of Representatives on May 23, 2013 and formally arrived in the Senate on June 3, 2013. Under this proposed legislation, subsidized and unsubsidized Stafford loan rates would be equal to the 10-year Treasury rate plus 2.5 percentage points while Parent-PLUS loans would be the Treasury rate plus 4.5 percentage points. President Obama has vowed to veto the bill should it make it to his desk because experts predict interest rates under that scheme would rise higher than they are now within the next four years.
So, your elected officials have between now and their August recess to emerge from their deeply entrenched partisan positions to reach a bipartisan solution before the interest rates take effect. Typically I'd be pushing for Congress to come up with a more permanent solution, but a temporary measure seems like the best we can get at this relatively late hour, because the proposed longer term "solutions" are in fact a hit to the wallets of students and families. For instance, H.R. 1911 is worse than doing nothing and actually makes things more expensive for students.
The Student Loan Affordability Act (S. 953) removes the July 1st deadline (imposed by Congress in the first place) and is a bill that students and their families can live with until a better, long-term solution can be developed and passed. Has your elected representative or senator heard from you? Please encourage him/her to pass the Student Loan Affordability Act (S. 953) or other legislation before classes start in the fall.
The clock ticks on.
