Thursday, May 23, 2013
The House on Thursday passed legislation to head off a doubling of student loan interest rates on July 1, instead tying rates to prevailing market trends and ending federal subsidies.
The bill, which passed 221-198, kicks off what is sure to be the next fierce showdown between House Republicans, Senate Democrats and President Barack Obama, with a hard deadline looming in little more than a month. Republicans said they had a long-term plan that would get the government out of the business of setting interest rates.
"What the House is doing today is a responsible way to deal honestly with the issue of student loans," said House Speaker John A. Boehner of Ohio. "Can somebody politicize this on the other side of the aisle? Certainly they can."
Democrats said House leaders were intent on raising the cost of already onerous student debt.
"It's really stunning," said Rep. Nancy Pelosi of California, the House minority leader.
At stake is a subsidized loan rate of 3.4 percent for more than 7.4 million students with Federal Direct Stafford Loans. That rate would jump to 6.8 percent if Congress fails to act; Democrats set the lower rate before Republicans swept to control of the House in 2011. Last June, Republicans buckled under political pressure and extended the subsidized rate for one year, just two days before its expiration.
This time, Republican leaders insist they will hold firm, but they face Senate Democrats who are dead set against their approach as well as a threatened White House veto.
The House bill would allow student lending rates to reset each year, based on the interest rate of a 10-year Treasury note, plus 2.5 percentage points for Stafford loans. The Congressional Budget Office projected rates on Stafford loans would rise to 5 percent in 2014 and 7.7 percent in 2023. Under the legislation, Stafford loans would be capped at 8.5 percent, while loans for parents and graduate students would have a 10.5 percent cap.
Senate Democrats want to extend the current, subsidized rate for at least two years. The cost to the federal government, several billion dollars, would be covered by closing tax loopholes, said Sen. Kirsten Gillibrand, D-N.Y., one of the Senate bills' primary sponsors. Gillibrand would go further, allowing graduates with higher interest-rate loans to refinance at a subsidized 4 percent rate.