GOP to Obama: Accept Deal on Market-Based Student Loan Rates

GOP to Obama: Accept Deal on Market-Based Student Loan Rates
Rep. John Kline, R-Minnesota, and House of Representatives Speaker John Boehner are urging President Obama to accept their market-based solution to student loan rates.

With nine days left before subsidized loan rates double for millions of college students, Republicans have turned up the heat on President Obama, urging him to “get engaged” on a compromise deal that would tie rates to U.S. Treasury notes.
Rep. John Kline, R-Minnesota, used the spotlight of the weekly Republican address today to push back on one of the president’s signature issues — lowering the costs of a college education.
Kline said there has been progress in working out a bipartisan plan that would create market-based rates for the most popular loan programs available to both undergraduate and graduate or professional-degree students, the subsidized Stafford loans and federal PLUS loans.
The rates on the Stafford is set to double to 6.8 percent on July 1. The current rate for PLUS loans is 7.9 percent.
“Because of our efforts, there are finally signs of progress toward a bipartisan plan on a long-term, market-based solution, but we need to finish the job – and do so soon,” Kline said in his weekly address. “This 11th-hour scrambling is a perfect demonstration of why we need to take the politics out of student loans once and for all.”
Kline and House of Representatives Speaker John Boehner both have made a point in recent days to remind the president publicly that he supports the concept of taking the decision of student loan rates out of politicians and linking them to market indicators.
Both are urging the president to support the bill Boehner touted, passed by the House in May, which would peg interest rates at 2.0 to 2.5 percentage points above the 10-year Treasury note and cap rates at 8.5 percent. Rates would be recalculated every year.
“We should now seize the opportunity before us,” Kline said. “I urge President Obama to get engaged so we can stop this rate hike and deliver the kind of long-term solution our students and their families deserve.”
Will a Market-Based Solution Push Borrowing Costs Even Higher?
Obama opposes the House bill. Under the president’s plan, rates would also be set based on the 10-year note, plus 0.93 of a percentage point, but would be fixed for the life of the loan. His plan does not include a rate cap.
The yield on the benchmark 10-year note rose to 2.51 percent on Friday, the highest since August 2011, on heightened concerns over plans by the Federal Reserve to pull back on its stimulus program.
Obama and Democrats say the Republican bill would make borrowing costs even more expensive for lower-income families.
The bipartisan Senate plan reportedly would put the annual rate for undergraduate Stafford loans at 2 percentage points above the yield on the 10-year Treasury note. Stafford loans for graduate students would be set at 3.5 percentage points above the 10-year Treasury.
PLUS loans — taken out by graduate students who exhaust Stafford limits and by parents of undergraduates who need additional funds to finance college tuition — would be set at 4.5 percentage points above 10-year notes.
The draft legislation would make loans cheaper for student loan borrowers for about three years, according to the Congressional Budget Office forecast. However, borrowing costs for students and their families would climb as the economy improves and interest rates rise.
The yield on the 10-year Treasury is forecast to average 4.1 percent in the 2016 fiscal year before rising to 4.9 percent in the 2017 fiscal year.
The CBO estimated in a report this month that the government would generate $184 billion in profit for student loans issued from the current fiscal year to 2023. That figure does not include $15 billion in profit the government booked this year from loans made in previous years.

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