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Mr. REED. Mr. President, I am pleased to introduce the Responsible Student Loan Solutions Act with Senator Durbin to offer a long-term approach to setting student loan interest rates.
Congress must take swift action to prevent the doubling of the interest rate on need-based loans on July 1, 54 days away. We also need a new mechanism for setting interest rates on all federal student loans for the long term so that students and taxpayers are protected, and we need to take the time to get it right.
In April, I introduced the Student Loan Affordability Act to keep the rate on subsidized loans at 3.4 percent for the next 2 years. This would give Congress time to debate a long-term solution as part of the reauthorization of the Higher Education Act.
Today, I am introducing legislation with Senator Durbin and Congressman Tierney and Congressman Courtney to overhaul the mechanism for setting the interest rates on federal student loans. Instead of setting a numerical rate in law, which quickly becomes out of sync with the economic and interest rate environment, or locking borrowers into a fixed rate with no opportunity to refinance when rates drop, our proposal will offer adjustable rate loans for students and parents with the protection of a cap on the maximum interest rate that could be charged during periods of high interest rates.
In today's low interest rate environment, the fixed rates for student loans are too high, resulting in student loans generating a profit for the Federal Government. If we would have maintained the variable rate for student loans that was in law before 2006, the interest rate for students in repayment on their loans would be 2.39 percent this year. At today's fixed rates, they will pay 3.4 percent for subsidized loans and 6.8 percent for unsubsidized loans. The Federal Government provides student loans to increase the number of Americans who attain college degrees, not to generate revenue. Yet, according to CBO estimates, the Federal Government will save more than 36 cents for every dollar lent in the student loan programs for fiscal year 2013. CBO projects that the student loan programs will continue to generate savings on the backs of students through fiscal year 2023. We need to change this.
The Responsible Student Loan Solutions Act will offer adjustable rate loans for students and parents with a cap on the maximum interest rate that could be charged to protect borrowers during periods of high interest rates. Interest rates for need-based, subsidized loans will be capped at 6.8 percent. Rates for unsubsidized and parent loans will be capped at 8.25 percent. Rates will be set every year based on the 91-day Treasury bill plus a percentage determined by the Secretary of Education to cover program administration and borrower benefits. The Secretary must set the rate so that the student loan programs are revenue neutral.
The Responsible Student Loan Solutions Act will also correct an inequity for undergraduate students who qualify for subsidized loans. Currently, a dependent undergraduate student can borrow up to $31,000 total. However, the maximum amount that can be subsidized is $23,000, which means that needy students often have to resort to more expensive unsubsidized loans to finance a part or the remainder of their education costs. The Responsible Student Loan Solutions Act will allow borrowers with demonstrated financial need to have up to the full loan limit in the lower cost subsidized program.
Finally, the Responsible Student Loan Solutions Act will allow borrowers with high fixed-rate federal student loans to refinance those loans into the new variable rate loan with a cap. This could be a real help to borrowers trying to make ends meet, considering that, under current conditions, rates calculated under a bill would be much lower than the fixed rates for unsubsidized loans 6.8 percent, PLUS loans made under the old bank-based program, 8.5 percent, and PLUS loans made through the Federal Direct Loan program 7.9 percent.
We need a multi-faceted approach to solving our student loan debt crisis, which reports from the Federal Reserve and others show is a drag on our economy. We cannot allow this generation of Americans to flounder, unable to buy a home or a car or secure credit or start a family under the weight of student debt.
We need to keep rates low in the short term--that means taking quick action to keep the rate from doubling in July. It also means over the long-term, setting rates in a way that does not add to the growth of student debt. I encourage our colleagues to join Senator Durbin and me in cosponsoring the Responsible Student Loan Solutions Act to put in place a long-term approach to setting student loan interest rates that is fair to students and taxpayers. I also urge our colleagues to support taking immediate steps to reassure students and families that the rate on subsidized loans will not double this July.