U.S. Senators Tom Coburn, M.D. (R-OK), Richard Burr (R-NC), and Lamar Alexander (R-TN) today introduced the "Comprehensive Student Loan Protection Act," a bill to provide a permanent solution to the problems created by temporary, arbitrary interest rates on federal student loans. The bill requires that, for each academic year, all newly-issued Stafford, Graduate PLUS, and Parent PLUS loans be set to the U.S. Treasury 10-year borrowing rate plus 3 percentage points. It directs any remaining savings to the Treasury for the purpose of deficit reduction.
"Moving to a market-driven approach will benefit both borrowers and taxpayers in the long-term," said Dr. Coburn. "Temporary fixes require annual patching and do nothing to solve the real problem. This bill provides a sustainable solution by eliminating arbitrarily dictated rates formulated by Washington politicians."
"As we have seen in a multitude of issues in Washington lately, stop-gap measures have been the norm, 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 it will also provide a long-term solution to this issue."
"This proposal is fairer to all students who are borrowing taxpayer dollars to continue their education," Alexander said. "Instead of short-term, expensive fixes that only help a few students who have federal loans, such as the one Congress passed last year, this bill will tie all interest rates to the market through a simpler, fairer system that lowers costs for students who take out federal loans to pay for college next year and saves taxpayer dollars."
In 2012, Congress approved a one-year extension of 3.4% interest rates for subsidized Stafford loans at a cost of nearly $6 billion, which is set to expire on July 1, 2013. If left untouched, rates will double from 3.4% to 6.8%.
The Congressional Budget Office included this proposal in its recent budget options, providing potential savings of $21 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.
Coburn and Burr introduced similar legislation in the 112th Congress.