Gridlock looms over bid to halt student loan rate rise

Competing Senate bills both fail

The Senate has reached a stalemate in its effort to keep student loan interest rates from doubling in a little more than three weeks.

Two competing bills to address the problem, one put forth by Republicans and another by top Democrats, failed Thursday to get the needed 60 votes to move forward. Both were rejected on largely party-line votes.

If nothing is done by July 1, interest rates on new subsidized Stafford loans will jump from 3.4 percent to 6.8 percent, a financial blow almost everyone in Washington — including President Obama — desperately wants to avoid.

But while there’s agreement that something must be done, the consensus ends there. 

With the House already having passed its own measure, the pressure is now on Senate leaders and the White House to forge a compromise on an issue that affects millions of college students and their families and will have a direct impact on the federal deficit.

On the Senate floor Thursday, tempers flared as members from both parties accused the other side of playing politics.

“This is like the opening act at the circus. Hopefully, the main event will attract some senators who are willing to conduct this in a grown-up way,” said Sen. Lamar Alexander, Tennessee Republican and an architect of the GOP plan.

Rather than have the federal government arbitrarily set interest rates, the Republican proposal would link them to 10-year Treasury notes, and then tack on an additional 3 percent. That means the rate would change from year to year; a student taking out a loan in 2013 will pay a different rate than a borrower in 2014. Once the loan is taken out, however, the rate will remain unchanged for the life of the debt.

The measure also would affect all student loans, not just those for low-income borrowers.

Under the Democratic plan, the 3.4 percent rate would remain in place for need-based student loans for the next two years. The bill is paid for through tax increases, including the elimination of deductions for oil and gas companies.

On the Senate floor, Democrats argued that the federal government takes in too much money from college loans, and that the amount should be reduced to give more young people a chance at higher education.

“We have the money to cut interest rates if we’re willing to reduce the profits we make from our students,” said Sen. Elizabeth Warren, Massachusetts Democrat.

The Obama administration previously has expressed support for a long-term measure, one that keeps this fight from repeating itself year after year. Last summer, Congress settled for a one-year stopgap measure to keep interest rates from rising after they were unable to come together on a permanent solution.

The Republican proposals in the Senate and House, both of which tie rates to financial markets, would provide a long-term fix. 

But key Senate Democrats appear unwilling to budge in their opposition to those plans.

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