Today, after the U.S. House of Representatives voted 221-198 to narrowly approve a bill that would potentially leave students worse off than if the interest rate were allowed to double on July 1st with the Congressional Budget Office projecting that the rate would rise to 7.7 percent, U.S. Senator Jack Reed (D-RI) issued the following statement:
"Congressional Republicans have pledged to never ask corporations and millionaires to help reduce the deficit, but are more than willing to ask middle-class students to sacrifice. Today's vote was a cynical and misguided attempt by House Republican leaders to pay lip service to the student loan issue that would actually cost America's students and working families more in the long run.
"Instead of raising interest rates on families struggling to pay for college, Congress should close costly special interest tax loopholes. In the short term, Senator Harkin and I have put forth a fully paid for plan to protect taxpayers and keep student loan interest rates affordable while ending wasteful subsidies for oil companies and reducing the amount of taxes lost to tax havens.
"I have also introduced the Responsible Student Loan Solutions Act, a fiscally-responsible approach to making our financial aid system more effective, affordable, and sustainable in the long term. The student loan interest rate offered by the government shouldn't be needlessly high, it should be based on actual costs. Some who claim it is important to avoid burdening our children and grandchildren with national debt are all too willing to bury these young people in student debt."
SUMMARY: Responsible Student Loan Solutions Act of 2013
The federal government provides subsidized student loans to increase the number of Americans who can attain college degrees -- not to generate revenue. Instead of setting a numerical rate in law, the Responsible Student Loan Solutions Act will set interest rates based on the actual costs of operating the student loan programs.
The Responsible Student Loan Solutions Act will help strengthen the economy, protect taxpayers, and ease the burden of student debt on families by:
Offering adjustable rate loans for student 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.
Setting the annual rate 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.
Correcting 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 bill allows borrowers with financial need to have up to the full loan limit in the lower cost program.
Allowing borrowers who are stuck with high fixed-rate federal student loans to refinance those loans into the new variable rate loan with a cap. Unsubsidized loans currently carry at 6.8 percent fixed rate. PLUS loans made under the old bank-based program carry a rate fixed of 8.5 percent. PLUS loans made through the Federal Direct Loan program carry a fixed rate of 7.9 percent.