More than 7 million new borrowers of subsidized Stafford student loans could see their rates double on Monday without congressional action — and Congress is on a one-week recess.
The interest rate for Stafford loan borrowers, including nearly 85,000 college students in Louisiana, will increase from 3.4 percent to 6.8 percent while Congress is locked in a stalemate on the issue, although lawmakers could approve a retroactive fix after the Fourth of July recess.
Student debt has risen from about $550 billion to $1 trillion in the past five years, according to a recent Joint Economic Committee report. The doubled Stafford interest rates would add about $4,500 to the cost of earning a bachelor’s degree, the report stated.
The House passed a market-based plan last month that keeps the interest rates low, initially, but allows them to grow starting in 2014. The House passed its “Smarter Solutions for Students Act” on a partisan 221-198 vote with only four Democrats in support. The claimed goal is to create a more self-sustaining program.
And the Democratic-led Senate has been unable to come up with a solution, partly because of the threat of a GOP filibuster and partly because the Democrats do not fully agree. That gridlock makes senators a big political messaging target for Republicans.
Rep. Bill Cassidy, R-Baton Rouge, criticized senators for going home without voting on the matter.
“Isn’t that what’s bad with Washington?” Cassidy said. “In the meantime, we have a program that doesn’t work well, and we continue to not address the problem.”
“I’m just shocked the Senate refused to address this very problem and adjourned when 7 million students are facing a doubling of their loans,” added U.S. Rep. Steve Scalise, R-Jefferson.
The House bill’s market-based approach allows student lending rates to reset each year. The non-partisan Congressional Budget Office projected that Stafford loan rates would remain low this year under the House bill, rise to about 5 percent next year and grow to roughly 7.7 percent in a decade — well above the doubled 6.8 percent rate.
The House bill is estimated to generate roughly $4 billion in federal revenues over 10 years.
But let’s backtrack for minute. Last year, President Barack Obama used the doubling of student loan rates as a key political campaign issue and got Republicans to cave into supporting a one-year extension.
Earlier this year, Obama also proposed a market-based approach, but his plan fixes the rates for the life of the loan, while also capping annual student-borrowing costs at 10 percent of a student’s income. The president opposes the House bill because of the “reset” issue and for the levels of rate hikes that are possible.
But Sen. Mary Landrieu, D-La., and many other Democrats oppose not only the House plan, but also the other market-based plans proposed thus far because they would “turn a profit” on students and lead to larger rate increases in a few years.
“The federal government should not be making a profit on the backs of students,” Landrieu said. “This increasing debt poses a potential risk to the economy. When people shoulder heavier debt, they delay purchasing a home, buying a car, starting a family or a business and saving for retirement.”
Senate Democrats proposed a two-year extension of the current rates, but the GOP filibuster kills that option.
A compromise bill by Sens. Joe Manchin, D-W.Va.; Richard Burr, R-N.C.; and a few others seeks to bridge the gap between the House bill and the president’s plan, but Landrieu and 33 other Senate Democratic critics alleged the bill still increases Stafford rates to more than 7 percent in five years .
“It’s a classic bait-and-switch,” said Sen. Tom Harkin, D-Iowa.
So Harkin, Landrieu and the gang of 34 Senate Democrats are pushing for a one-year extension of current rates — applied retroactively to July 1 — to provide time to develop as long-term fix as part of next year’s Higher Education Reauthorization Act.
So they now see July 8 as beginning of debate and votes for the one-year delay.
Still, Cassidy and other Republicans contend the Senate should have worked out a bill similar to the president’s plan that could have been meshed into a compromise with the House bill in a conference committee.
Regardless of whether one side is more correct on the matter, the students are the ones left with the financial instability.
Jordan Blum is chief of The Advocate’s Washington bureau. His email address email@example.com.