U.S. Senators Tom Coburn, M.D. (R-OK) and Richard Burr (R-NC) today introduced the "Comprehensive Student Loan Protection Act," a bill to provide a long-term fix to the interest rate on subsidized student loans by changing the structure for all new federal student loans first disbursed after July 1, 2012, to become a fixed-variable rate. It requires the applicable rate of interest for student loans to be equal to the bond equivalent rate of 10-year Treasury bills auctioned at final auction prior to June 1st plus 3 percent. Lastly, it directs any remaining savings left over to be sent to the Treasury for the purpose of debt reduction.
"Aside from benefiting student borrowers and putting money back into the pockets of taxpayers over time, moving to a market rate it is just the right thing to do," said Dr. Coburn. "Instead of spending our time debating which temporary fix will cause the least amount of pain in the short-term, my hope is that my colleagues will support a bill that provides a long term solution that will not require needless annual patching. This bill gives the system, students and the government certainty."
"Stop-gap measures have been the norm on a multitude of issues in Washington lately, but one thing that is consistent among them is that short-term fixes are rarely the answer to the problem," Senator Burr said. "Not only will this bill bring loan payments down for students, but by indexing student loan rates to a market rate, we provide a long-term solution to this issue."
The Congressional Budget Office included this proposal in its recent budget options, providing potential savings of $52 billion over ten years. The "Comprehensive Student Loan Protection Act" applies to all loans and would lower costs for most borrowers--including those who qualify for the maximum Subsidized Stafford at 3.4 percent.