Republicans are siding with President Obama. Democrats are opposing both. The fight over controlling student loan interest rates is making for strange politics as the July 1 deadline approaches for the doubling of the 3.4 percent rate on federally-subsidized Stafford loans.
The House Education and the Workforce Committee on Thursday approved a Republican-sponsored bill that would tie student loan interest rates to the prevailing rate on the 10-year Treasury Note, plus 2.5 percent.
Parent and graduate “PLUS” loans would be calculated using the 10-year Treasury note, plus 4.5 percent.
Two Democrats voted for the bill. The full House is expected to vote on the measure soon to beat the July 1 deadline.
President Obama’s budget proposes a “cost-neutral reform” to set interest rates so they more closely follow those dictated by the financial markets, which currently are at historic lows. Obama also calls for “more affordable repayment options.”
But Democratic members of the House of Representatives — including George Miller, D-California; John Tierney, D-Massachusetts; Joe Courtney, D-Connecticut; and John Yarmuth, D-Kentucky — contend that the proposal will make college more expensive for students and families, “forcing them into loans with skyrocketing interest rates that fluctuate year by year, further compounding the student debt crisis,” according to a jointly-released statement.
Democrats are citing a Congressional Research Service (CRS) report on the Republican bill which finds that it would leave students worse off than if these interest rates were allowed to double on July 1.
The CRS found that:
• Students who borrow the maximum amount of subsidized Stafford loans over five years would pay $10,109 in interest payments under the Republican bill, $4,174 if rates were kept at 3.4 percent or $8,808 if rates are allowed to double to 6.8 percent in July.
• Students who borrow the maximum amount of subsidized and unsubsidized Stafford loans over five years would pay $14,430 in interest under the Republican bill, $12,598 if subsidized loans were allowed to double to in July, or $7,965 if rates don’t double.
• Parents and graduate students would also pay more under the Republican bill. For instance, a parent who borrows the maximum amount for their child over five years would face $35,848 in interest payments under the Republican bill, more than the $27,956 under current law.
“A low-income, four-year borrower enrolling in college next year would pay more interest on her student loans under the Republican proposal than she would if we took no action,” said Rep. Miller, the senior Democrat on the House Education committee.
Republicans voted against a Democratic amendment that would freeze subsidized Stafford Loans at 3.4 percent for two years.
Republicans also opposed a second amendment similar to legislation introduced by Sen. Elizabeth Warren, D-Massachusetts, which would set Stafford loan interest rates to the rate banks get from the Federal Reserve. Current rates provided to the largest banks are set at 0.75 percent.
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