Tuesday, September 2, 2014

Bills would prevent rise in student loan rates

By Tamar Lewin

Congress now has an array of legislative options to prevent the interest rate on student loans from doubling to 6.8 percent on July 1, as scheduled.

With student loans topping $1.1 trillion — and held by one in five American households — many families are questioning why students should pay so much when market interest rates are so low.

On Thursday, Rep. John Kline, a Minnesota Republican who is chairman of the House Committee on Education and the Workforce, introduced legislation that would provide a long-term solution, tying interest rates to the government’s cost of borrowing, as the Obama administration proposed in its budget.

“I think a lot of people are going to go for it,” Kline said. “I talked to Secretary Duncan yesterday,” he added, referring to Education Secretary Arne Duncan, “and told him that our numbers were a little different, but the approach is the same.”

There are other proposals out there, too. In her first stand-alone legislation, Sen. Elizabeth Warren, Democrat of Massachusetts, introduced a bill on Wednesday to cut the student loan rate for one year to 0.75 percent, the rate that big banks get.

Two other Democratic senators and two Democratic representatives this week proposed rates based on the 91-day Treasury bill, and three Republican senators have offered legislation that would set the interest rate at three percentage points above the 10-year Treasury rate.

There is now widespread acceptance of the idea of moving to market-based rates. Under Kline’s proposal, students would pay the 10-year Treasury rate, plus 2.5 percent, for all Stafford loans, with a cap of 8.5 percent. For Parent Plus and Grad Plus loans, the rate would be the Treasury rate plus 4.5 percent, with a 10.5 percent cap.

Real divisions remain, though. The administration proposed no cap on interest, leaving students vulnerable to high rates in years to come. But while the White House wants rates fixed for the life of the loan, the Kline bill would reset rates each year — and that, too, would leave students vulnerable to high costs if interest rates rise.

In a statement Thursday afternoon, the president again called for Congress to act to prevent the rate from doubling, but did not endorse Kline’s plan.

“While we welcome action by the House on student loans, we have concerns about an approach that both fails to guarantee low rates for students on July 1 and asks too many of them to bear the burden of deficit reduction through unaffordable rates,” said the statement, from a spokesman, Matt Lehrich.



New York Times News Service



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