REPORT FROM: OFFICE OF GOVERNMENTAL AND COMMUNITY AFFAIRS >>

Congress OKs student loan rate bill

By Cameron Taylor, Director of Federal Affairs | Emory Report | July 16, 2013

UPDATE 8/1:

A Senate bill rescinding the July 1 increase in student loans rates passed the U.S. House of Representatives on July 31. President Barack Obama is expected to sign the measure.

Both Houses of Congress approved the bill by wide measures, 392 to 31 in the House; 81 to 18 in the Senate.

The Senate had voted on July 24 to undo the increase in student-loan interest rates that went into effect on July 1. The bill, called the Bipartisan Student Loan Certainty Act of 2013 (S. 1241), is a compromise that will peg interest rates to the financial markets.  

The legislation ties the interest rate on subsidized and unsubsidized Stafford loans to the 10-year Treasury note plus 2.05 percentage points for undergraduates. Interest rates on new unde­rgraduate loans would sit at 3.9 percent this year instead of the 6.8 percent rate put into effect July 1.  It also includes an 8.25 percent cap on undergraduate loans.  Graduate students would pay the market rate plus 3.6 percentage points on unsubsidized Stafford loans, with a 9.5-= percent cap. PLUS loans for parents and graduate students would be tied to the market rate plus 4.6 percentage points, with a 10.5 percent cap.

Some Democrats remain concerned that future college students will pay higher rates: $2,200 more on a $25,000 loan if the interest rate reaches the cap.  Congress will soon take up reauthorization of the Higher Education Act, the law governing federal student aid.  At that time, Congress will likely review this law as well as other areas relevant to college financing.

__________

FIRST POSTED 7/16: Student loan interest rates in limbo 

Congress has been unable to reach an agreement on student loan interest rates.

As a result, interest rates on new subsidized Stafford loans doubled from 3.4 percent to 6.8 percent effective July 1.

Congressional leaders have promised a forthcoming retroactive fix.  However, resolution of the longstanding congressional impasse over this issue remains in question.  

For the past several years, the federal government has lowered the interest rate for new subsidized Stafford loans. These loans are taken out by more than 7 million undergraduates each year. For the past two years, the interest rate has been 3.4 percent.  

The White House, House Republicans and Senate Democrats have proposed different plans to keep the interest rates from doubling. Republicans and the White House would like to tie the interest rates to Treasury bonds, which would let the rates fluctuate. Meanwhile, Democrats have sought another one-year extension of the 3.4 percent interest rate so they can address the issue when Congress reauthorizes the Higher Education Act, the massive law governing federal financial aid programs.  

Last week, a bipartisan group of senators reached a tentative agreement on a plan to create a permanent fix for student loan interest rates. Under the agreement, interest rates for Stafford student loans would be tied to the variable rates of the 10-year Treasury bond plus 1.8 percentage points. The graduate student rate would be the 10-year Treasury bond rate plus 3.4 percentage points. The PLUS loan interest rate would be the Treasury rate plus 4.5 percentage points. The agreement caps interest rates at 8.25 percent for undergraduates and 9.25 percent for graduate students.  

The new rates would apply retroactively to loans taken out after July 1. Under the agreement, it has been estimated that students in the coming school year would be charged 3.61 percent for undergraduate loans and 5.21 percent for graduate student loans. The rates would vary with market conditions; however, each year, rates would be fixed for the duration of the loan.  

Just to prove how complicated this all is, the Congressional Budget Office has determined that the Senate bipartisan agreement would cost the government $22 billion over 10 years. The group had hoped the plan would be near deficit-neutral so that it could attract sufficient votes for passage. 

While the Senate group reconsiders its plan, Senate Majority Leader Harry Reid (D-NV) has announced that this week he may renew the motion to proceed to the Senate Democratic leadership's bill, Keep Student Loans Affordable Act of 2013 (S. 1238). That measure, which failed to reach the 60-vote threshold for cloture on July 10, would return student loan rates to 3.4 percent for a year while broader negotiations continue.  

While there is a clear desire by Congress to keep the interest rates on new subsidized loans low, the question is whether a compromise deal will in fact be less beneficial to our students than simply letting the rates stay at 6.8 percent.  

Emory's Office of Governmental and Community Affairs will continue to advocate for a permanent solution that keeps loan rates as low as possible for our students over the long-term. 

Editor's Note

This column from Emory's Office of Governmental and Community Affairs is designed to provide timely information on legislative issues related to higher education and academic and medical research.