President Barack Obama called on Congress Friday to prevent student loan interest rates from doubling to 6.8 percent, a move that many congressional Republicans denounced as a campaign stunt rather than an effort at real change.
Obama made his pitch in reaction to the House of Representatives’ vote last week for the Smarter Solutions for Students Act, which would revamp the way student loan interest rates are calculated. Instead of Congress determining interest rates every year – resulting in uncertainty for lenders and borrowers – the measure would tie the interest rate to the 10-year Treasury rate, plus 2.5 percent. If enacted, that would mean the interest rate this year would be 4.31 percent. The student loan rate would readjust with the Treasury rate every year.
However, the nonpartisan Congressional Research Service said the House Republican plan would cost students more than if no action were taken at all, since projections are that the Treasury rate will increase steadily to 5.2 percent by 2018, driving the student loan rate to 7.7 percent.
“It fails to lock in low rates for students next year. That’s not smart,” Obama said in the White House Rose Garden in front of a group of college students. “It eliminates safeguards for lower-income families. That’s not fair. It could actually cost a freshman starting school this fall more over the next four years than if we did nothing at all and let the interest rates double on July 1.”
Republicans criticized the event, wondering why Obama decided to host a media appearance rather than call congressional leaders to work out a bipartisan solution directly. They pointed out that the Smarter Solutions for Students Act was based on the plan that the president himself introduced in his fiscal year 2014 budget request. Obama’s plan also based the student loan interest rate on the 10-year Treasury rate but it adds 0.93 percent instead of 2.5 percent. Obama also called for locked-in rates for the life of the loan, rather than a readjustment every year.
“The differences between the House plan and the president’s are small, and there’s no reason they cannot be overcome quickly,” said House Speaker John Boehner, R-Ohio. “But today, rather than working to resolve the issue, the president resorted to a campaign stunt to try to score political points. If the president is truly unhappy with inaction, the only place to look is the Democratic-run Senate, which has taken no action to prevent rates from doubling.”
Senate Democrats have said they plan to introduce a bill to freeze the rate at 3.4 percent for the next two years, the same freeze that Congress used to address the problem last year. The Obama administration supports that plan.
They added that they’d like to address a long-term solution as part of the upcoming reauthorization of the Higher Education Act, which expires in December.
Democratic Sen. Elizabeth Warren of Massachusetts proposed that the student loan rate be fixed at the same rate the Federal Reserve charges banks for a year. That rate currently sits at 0.75 percent.
There’s about $1 trillion in outstanding student-loan debt in the United States today, and federal student loans make up about $850 billion of that, according to the Consumer Financial Protection Bureau.