Education
2:38 am
Thu May 23, 2013

College Students Eye Calendar, Wait To See If Loan Rates Double

Originally published on Fri May 24, 2013 10:54 am

Transcript

DAVID GREENE, HOST:

And let's hear about another change that could affect students and their families. Interest rates on government subsidized loans are set to double on July 1 unless Congress intervenes. Student debt is the second largest type of debt for U.S. households after mortgages. Now, Republicans, Democrats and the Obama administration all have competing proposals to head off that interest rate increase. Today, the House of Representatives will vote on a GOP plan that would tie the interest rate on new federally guaranteed college loans to a market-based rate. Many, though, see a bipartisan agreement as unlikely. NPR's Claudio Sanchez reports in today's business bottom line.

CLAUDIO SANCHEZ, BYLINE: A year ago, 22-year-old Clarice McCants was on Capitol Hill, knocking on doors, pleading with lawmakers to keep the interest rate on subsidized Stafford loans from doubling. The pressure led to a one-year deal that kept the rate at 3.4 percent.

CLARICE MCCANTS: And now the problem's coming up again and the solutions that seem to be gaining traction are not even solutions that would keep the rate low for students.

SANCHEZ: The Philadelphia native has since graduated from Howard University with a student loan debt of $50,000. And if loan rates double by July 1, Clarice might as well forget her plans for graduate school. Not everyone on Capitol Hill, though, is feeling so gloomy.

REP. JOHN KLINE: Well, this is the best opportunity we've had for a bipartisan deal in some time.

SANCHEZ: Congressman John Kline, Republican of Minnesota, chairs the House Committee on Education and the Workforce. Most Republicans have gotten behind his plan, which would tie all Stafford loan interest rates to the 10-year Treasury rate. That's the market rate the U.S. government pays when it borrows. So come July 1, under Kline's plan, the interest rate would not double but it would climb to just under 5 percent.

KLINE: This is a long-term solution - and that's a very good thing for them. If interest rates start to rise too high, then we put in caps so you can't go above 8.5 percent for a Stafford loan or above 10.5 percent for a graduate or PLUS loan.

SANCHEZ: Even with a cap, Democrats say any plan that does not keep the interest rate at the current 3.4 percent is a bad plan.

SEN. KIRSTEN GILLIBRAND: The cost of college has gone out of control and adding interest rates on top is beyond what young people can handle. It's crazy.

SANCHEZ: Sen. Kirsten Gillibrand, Democrat of New York, opposes a market-based rate.

GILLIBRAND: Because the markets are so unstable, can change often, and you don't want to be paying, you know, 7, 8, 9, 10 percent because that's money you cannot afford.

SANCHEZ: Like a majority of Democrats, Gillibrand wants to keep the interest rate fixed at 3.4 percent for at least two more years. That would cost over $8 billion. To pay for it, Congress would have to eliminate corporate tax breaks and close loopholes in the tax code. Kline says the Democrats' plan is, at best, shortsighted.

KLINE: It's kicking the can down the road. It's keeping Congress and politicians in the business of deciding what the interest rates ought to be and it is raising taxes.

SANCHEZ: President Obama has threatened to veto the Republican proposal in its current form. But he has his own plan, and like Republicans, he wants to tie the Stafford loan rate to the 10-year Treasury rate. Under the president's plan, interest rates for some loans would be lower than the Republican plan. For other loans, the rate would be higher with no cap. It's unclear which plan will survive, but Congressman Kline says if there's no agreement by July 1...

KLINE: Then that means, by law, the subsidized Stafford loan rates are going to go up to 6.8 percent. And those are designed for the neediest students, so they would be hit the hardest.

SANCHEZ: All that students can do now is hold their breath, just like they did last year. Claudio Sanchez, NPR News. Transcript provided by NPR, Copyright NPR.