Dems ramp up push to protect lower student loan rates

By Peter Schroeder - 03/13/12 01:41 PM ET

Democrats in the House and Senate are exhorting their colleagues to stop interest rates from doubling on federally subsidized student loans this summer.

On Tuesday, Sen. Jack Reed (D-R.I.) and Rep. Joe Courtney (D-Conn.) joined student and consumer activists to push legislation freezing the interest rates on Stafford federal subsidized loans, warning of dire consequences if Congress failed to act.

"This is a question of competitiveness," said Reed. "Our ability to compete ... rests fundamentally on our ability to educate young Americans."

Courtney added that allowing rates to climb is a "recipe really for going backwards as a nation."

Under a law passed in 2007, the fixed interest rate on these loans was gradually lowered to 3.4 percent from the prior 6.8 percent rate. However, that law is set to sunset on July 1, leading Democrats in both chambers to push for another yearlong extension.

However, figuring out how to pay for that extension is a key obstacle to making it a reality.

In his 2013 budget proposal, President Obama included a yearlong extension of the lower rates, which he billed at a cost of roughly $3.8 billion over the next decade.

"This Congress needs to stop the interest rates on student loans from doubling this July. That's pretty important," Obama said in a February speech unveiling his proposal. "That's in our budget. We’re saying to Congress, now is not the time to make school more expensive for young people."

But Republicans maintain that extending the lower rates carries a heftier price tag — the GOP-controlled House Education and Workforce Committee estimates it would cost nearly twice as much, $6 billion, to pay for another year of lower rates.

"We all want to promote efforts that will reduce college costs, but the era of empty promises has to end," said Chairman John Kline (R-Minn.) in January. "The interest rate hike students face is the result of a ticking time bomb set by Democrats five years ago. Simply calling for more of the same is a disservice to students and taxpayers."

Rather, Republicans are pushing ways to increase competition and price transparency as a way to keep college affordable.

Democrats maintained their confidence that Congress could come up with the necessary pay-fors to cover the lower rates, with Courtney saying he could whip up a list "on the back of an envelope," including targeting tax breaks for oil companies and hedge funds.

"In 2008, when the banks needed help ... this place moved in record time," he said.

The push comes as student loan debt continues to expand as Americans take on more loans to pay for steadily increasing tuition. Student loans have outpaced credit cards and car loans to become the largest single category of consumer debt, totaling $867 billion last year, according to the Federal Reserve Bank of New York.

This post updated at 2:38 pm.