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Column - A Long-Term Solution for Student Loan Interest Rates


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Without action, millions of recent college graduates and other borrowers could see the interest rates on their student loans double on July 1 of this year. To prevent this problem, House Republicans passed H.R. 1911, the Smarter Solutions for Students Act, a long-term solution to stop the rate hikes next month, and to get politicians out of the business of setting student loan interest rates.

In 2007, Congress arbitrarily lowered interest rates on subsidized Stafford Loans to undergraduate students from 6.8 percent to 3.4 percent. However, this action was only temporary and was set to expire in 2012. Last year, Congress agreed to extend the 3.4 percent interest rate on these loans for one year while a long-term solution was worked out.

I opposed the 2007 bill because there are numerous problems with allowing Congress to set interest rates on student loans. By doing so, these rates can be used as political bargaining chips causing uncertainty for borrowers about whether Congress is going to act in time to prevent a rate hike. The costs of higher education should not be subject to campaign promises and the whims of Washington.

A market-based interest rate for student loans is a better long-term policy for borrowers and taxpayers. The Smarter Solutions for Students Act would reset all Stafford and PLUS loan interest rates once a year based on a 10-year Treasury Note. Importantly, the legislation also would cap the interest rate for Stafford and Plus loans at 8.5 percent and 10.5 percent, respectively.

In addition to providing greater certainty for students, the Congressional Budget Office estimates this bill would save the federal government $990 million during the next five years and $3.7 billion during the next 10 years. The American Council on Education estimates while H.R. 1911 would raise slightly the rate for subsidized loans, the bill would result in lower rates for unsubsidized Stafford and parent PLUS loans.

This is not a partisan issue. The President's fiscal year 2014 budget includes a similar proposal to move to a market-based interest rate, signaling a growing consensus this is a better approach for students, families, and taxpayers.

While there are some differences between our bill and what the President has proposed, the House has agreed to most of what the White House has requested. Rather than hold out for everything he wants, the President should use his leverage to encourage the Senate to pass a bill. Then the House and Senate can work out our differences and prevent these arbitrary rate hikes on millions of Americans.

By taking politicians out of the student loan interest rate equation, we would serve the interests of borrowers and taxpayers, and prevent future showdowns which jeopardize the cost of higher education. Hopefully, we can all agree on this goal.

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