Congress Seeks $6 Billion to Keep College Loan Rate from Doubling
Subsidized Stafford student loan interest rates will double on July 1st for loans taken out by new students entering college. President Barack Obama used the issue to rally younger voters during the last election as he advocated keeping the rates lower, which Congress did.
Now, Obama and Democrats are under pressure to keep the lower rates for new students but have yet to find a way to pay for the subsidy. As The Hill notes, “While Senate Democrats supported the lower rates in their budget, they did not set aside funds to address the issue.”
Likewise, so far the White House has yet to lay out a plan to pay for the nearly $6 billion in offsets needed to cover the cost of subsidizing Stafford Loans at the lower interest rate.
“No one wants to see student loan interest rates increase,” said Rep. John Kline (R-MN). “When Congress approved legislation to temporarily stave off the Stafford Loan interest rate increase, my colleagues and I lent our support with the promise that we would use this time to work toward a long-term solution that better aligns interest rates with the free market.”
Critics say that while the issue may make for good political theater that engenders support from college students and their parents, it is overblown.
Mark Kantrowitz of FinAid.org says over a 10-year repayment period, a student borrower would incur just $761 in added cost. And as CBS News Money Watch points out, “While Americans have roughly $1 trillion in outstanding student debt, only about 3 percent of student debt will be impacted if the Stafford rate doubles.” Moreover, today’s interest rates are atypically low to begin with; in 2007, the subsidized rate was 6.8%, not the 3.4% for the 2011-2012 school year.
Still, lawmakers appear prepared to move forward to find a way to keep the lower rates in place.
House Budget Committee Chairman Paul Ryan (R-WI) said the key to lawmakers finding a way to forestall the college loan rate hike is to find a way to pay for it.
“If we bring legislation to the floor that is paid for to deal with it like we did last year, I would assume we have every reason to believe that we'll pass it,” said Ryan.