By Jay Field
U.S. Sen. Angus King joined a handful of Democrats and Republicans today in backing a proposal to prevent student loan rates from doubling. The jump is due to take place July 1, if Congress fails to act. The Bipartisan Loan Certainty Act would tie the interest rates on student loast to the 10-year treasury note. A second proposal, offered by a group of Democratic senators, would extend the existing 3.4 percent rate for one year while Congress works on a longer-term solution. Jay Field reports.
States across the country are watching the congressional maneuvering over student loan debt closely. Students who borrowed money to pay for college and graduated from four-year institutions in 2011 owed $26,600, on average, nationally, according to the Project on Student Debt.
Among graduates that same year in Maine, 71 percent reported having at least some debt, the fifth-largest number of students with loan obligations in the country.
"We're talking about a solution that I think, a - saves a ton of money for current students; and b - is a rational way to set these rates," King said at a press conference early Thrusday in Washington.
In 2007, Congress temporarily lowered interest rates for four years on subsidized Stafford loans from 6.8 percent to 3.4 percent. A one-year extension of the lower rate is set to expire July 1, unless lawmakers come up with a fix.
King, an independent, is putting forward a proposed solution with Democratic U.S. Sens. Joe Manchin of West Virginia and Tom Carper of Delaware, and Republican Sens. Lamar Alexander of Tennessee, Tom Coburn of Oklahoma and Richard Burr of North Carolina.
Going forward, King says student loans would be set to the U.S. Treasury's 10-year borrowing rate, plus an additional 1.85 percent for subsidized and unsubsidized undergrauate Stafford loans.
"The students are always going to get the lowest rates available because it's going to be the T-bill plus this 1.85, and I venture to say you'd never get a rate like that in the private sector," King said.
Interest rates would be fixed for the life of a loan, and the rates on consolidated loans would stay at 8.25 percnet. Back in May, the Republican-controlled U.S. House passed a bill that would also tie student loan rates to the 10-year T-note. But the measure called for rates to be reset every year, rather than fixed for the life of the loan, and Democrats in the Senate objected.
Another last-minute compromise, led by a handful of Democratic senators, would extend the current 3.4 percent rate for another year, giving Congress more time to work on a permanent fix.
"There's no reason to have a short-term political fix on the student loan issue," says Republican U.S. Sen. Lamar Alexander, of Tennessee. Alexander says Congress can, and should, give U.S. college students longer-term certainty about what the terms of their loans will look like.
The chance that lawmakers will pass some kind of fix by July 1 now appears remote, but Alexander says Congress still has time to reach an agreement.
"There's no reason why we can't come back after the Fourth of July recess, pass this legislation, send it to the president," he said. "If he signs it reasonably early in July, then every new loan made after July 1 will be made at a lower rate than today."
But many Senate Democrats are at odds with the idea of capping the rates on consolidated loans at 8.25 percent. They say that rate is too high and students could end up paying more than they can afford over the life of their loans.
By finally passing immigration reform, the Senate has gotten one big piece of business out of the way. But these lingering divisions on competing student loan proposals all but ensure that existing rates will jump on Monday.