On Thursday evening, the Senate adjourned for a weeklong recess, meaning legislation will not be passed before July 1 when interest rates on need-based student loans will double from 3.4 percent to 6.8 percent.
Last month, the House passed the Smarter Solutions for Students Act, which would set federal student loan rates equal the rate on the 10 year Treasury note plus 2.5 percent. The rate would be variable, and would reset each year, although students could package all their loans into a fixed-rate loan after graduation. The GOP bill also caps the rate at 8.5 percent.
Senate Democrats tried to pass their own bill, which would have extended the 3.4 percent for two years in order for lawmakers to work on a permanent fix. Sen. Jack Reed (D-R.I.) paid for the bill by ending three tax breaks. But Republicans successfully blocked the measure by requiring a 60-vote threshold through filibustering the bill.
On Thursday, two competing plans were introduced in the Senate.
Reed introduced a tweaked version of the last failed Senate attempt. The Keep Student Loans Affordable Act would extend the 3.4 percent rate for need-based loans for one year and would be paid for by ending a tax break on tax-deferred retirement accounts. He said that would generate around $4 billion to pay for the reduced student loan rate until the Senate could consider the reauthorization of the Higher Education Act.
“The reality is today, wittingly or unwittingly, this program, and indeed as would be true for the proposals that have been put on the table, is generating huge amounts of profits to the Federal Government — it has been estimated more than $50 billion this year,” Reed said on the Senate floor Thursday. “We should be investing in the potential of young Americans, not looking at them as profit centers to help us reduce the deficit.”
Sens. Joe Manchin (D-W.Va.), Richard Burr (R-N.C.), Tom Coburn (R-Okla.), Lamar Alexander (R-Tenn.), Angus King (I-Maine) and Tom Carper (D-Del.) introduced a bipartisan bill similar to the House plan. The “Bipartisan Student Loan Certainty Act” requires that, for each academic year, all newly issued student loans be set to the U.S. Treasury 10-year borrowing rate plus 1.85 percent for subsidized and unsubsidized undergraduate Stafford loans; plus 3.4 percent for graduate Stafford loans; and plus 4.4 percent for PLUS loans. The interest rate would be fixed over the life of the loan, and the cap on interest rates for consolidated loans would remain at 8.25 percent.
“I think we have learned from our current circumstance the folly of Congress trying to set interest rates. Setting 6.8 percent and 3.4 percent interest rates 5 or 6 years ago looked like a great deal. Today it is generating billions of dollars to the Treasury on the backs of our students,” King said. “I think our solution is a commonsense solution, and that is to base the interest rate for the students at the lowest available rate to virtually anybody in our society, which would be the 10-year Treasury bill, plus 1.85 percent.
But some Democrats argue that plan is worse than doing nothing since the rates could get higher than 6.8 percent.
“I think we need, frankly, at least one more year so we can sit down and do this correctly,” Reed said. “If you look at the proposals that are out there, there is a short-run attractiveness because the rates have been configured so they look pretty low. But if you follow the rates out, within 3 or 4 years they are above the statute, the law that goes into effect on July 1.”
King said he wasn’t sure what senators would know one year from now that that don’t already know.
Senators are reportedly negotiating a compromise between the two bills that would be debated and considered when the Senate returns the week of July 8. If a bill passes, it would likely be retroactive since the July 1 deadline would have been missed.