Senate back at student loans as pressure and rates mount, but deal elusive
A key student loan rate doubled last week after Congress refused to act, but the majority Democrats in the Senate are split and the party leadership is looking for a short-term fix.
Back from its one-week July 4 recess, the Senate is zeroing in on student loans Wednesday, poised to take up bills addressing the interest rates on subsidized federal loans after a key rate doubled last week.Skip to next paragraph
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After Congress refused to act last month, the rate borrowers pay on subsidized Stafford loans – which make up about 40 percent of federal education loans – doubled from 3.4 percent to 6.8 percent on July 1.
Pressure is now mounting on Congress to come up with a fix before many student loans are issued later this summer, but the various sides appear unable to come together – even though they’re not too far apart on what they seem to want.
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Even the measure passed by House Republicans in May, which is criticized by most Democrats, isn’t too far from the plan in President Obama’s budget proposal. Both call for a long-term fix that would peg the interest rate to US Treasury borrowing rates.
Within Senate Democratic ranks, meanwhile, there is a strong split – epitomized Tuesday by dueling news conferences held by different factions of the party after a closed-door lunch.
Some Senate Democrats, including Joe Manchin of West Virginia and Thomas Carper of Delaware, along with Angus King of Maine, an Independent who caucuses with the Democrats, touted the bipartisan solution they’ve been pushing, which differs from the House Republican plan but which also would peg interest rates to the 10-year Treasury rate.
But Senate majority leader Harry Reid and other top Democrats criticized that solution as well as the one from House Republicans.
“Speaker Boehner says the House has acted and the ball is in the Senate’s court. But Democrats can’t support a plan that would be worse for students than doing nothing at all,” Senator Reid said in remarks on the Senate floor on Tuesday.
Reid and many other Senate Democrats favor once again passing a short-term fix – extending the 3.4 percent rate one more year, which they would pay for by changing some tax rules on certain retirement accounts.
They say such a short-term solution would enable them to focus on deeper, more systemic problems and long-term solutions to college affordability in the fall, when they take up the Higher Education Act. Others see it as Congress once again punting a thorny issue down the road rather than addressing it.
“Why should we have a political one-year fix for 2 million students and leave 9 million more paying rates that are higher than they should, 7 million of them middle-income students?” asked Sen. Lamar Alexander (R) of Tennessee, speaking to reporters after the lunch Tuesday. He was referring to the fact that the one-year extension would apply only to subsidized loans, while the bipartisan solution he supports would also lower interest rates, at least in the short term, for students getting unsubsidized federal loans as well.
Some college finance experts say a short-term solution is unlikely to really encourage Congress to address bigger issues in the fall.