U.S. Senators Joe Manchin (D-WV), Richard Burr (R-NC), Tom Coburn (R-OK), Lamar Alexander (R-TN), Angus King (I-ME), and Tom Carper (D-DE) officially introduced today the Bipartisan Student Loan Certainty Act, a compromise bipartisan solution that would avert student loan interest rates from doubling on July 1st and provide a permanent solution that would lower and fix interest rates for 100 percent of newly issued student loans.
The Student Loan Certainty Act requires that, for each academic year, all newly-issued student loans be set to the U.S. Treasury 10-year borrowing rate plus 1.85% for subsidized and unsubsidized undergraduate Stafford loans; plus 3.4% for graduate Stafford loans; and plus 4.4% for PLUS loans. The interest rate would be fixed over the life of the loan and the cap on interest rates for consolidated loans would remain at 8.25%. The Congressional Budget Office has determined this legislation would reduce the deficit by $1 billion over ten years.
King said: "Congress will be doing America's students a serious disservice if we allow interest rates to double at the end of this month, and while both sides of the aisle are committed to resolving the issue, continuing to delay a desperately-needed long-term fix is simply unacceptable. Our constituents elected us to get things done, and that's why I sat down with Republicans and Democrats to forge a market-based, long-term deal that would lower interest rates for all students and maintain important protections. We have an opportunity to end the unfortunate pattern of legislating by temporary-extension and partisan brinkmanship and provide America's students with the resources they need to obtain an affordable college education."
Manchin said: "Our bill is the only bipartisan, permanent fix that lowers interest rates for all students, especially the poorest, while also putting in place a consolidation cap that ensures student loan interest rates never become unaffordable. We've had a year to fix this problem and I refuse to kick the can down the road again. It's time Congress stops playing politics with our students' future and passes a commonsense long-term fix."
Burr said: "Neither party wants to see rates rise next week. That's why my colleagues and I came to the table to negotiate a bipartisan, permanent market-based solution that ensures access and affordability for students seeking higher education. Last year we kicked the can down the road and passed a one-year extension for only a small group of students. We can look back and know that if the bipartisan bill we're introducing today had been passed last year, students and their parents would have saved billions of dollars in interest payments. Why would we make the same mistake again and just kick the can down the road another year? Let's stop playing politics and give all our students--not just a few--the certainty they deserve once and for all."
Coburn said: "It is time Senate leadership stop playing short-term politics with student loans and put in place a permanent, market-based solution that provides stability for students and their families. Our bill represents a compromise between Republicans, Democrats, and an Independent that closely resembles similar plans from both the President and the House of Representatives. I am hopeful commonsense will prevail and Senate leadership will put our tri-partisan proposal up for a vote."
Alexander said: "This agreement is very much like the proposal in the President's budget, it is very much like the proposal passed by the Republican House of Representatives, and it will save billions of dollars in interest for all 11 million students taking out loans this year by dropping rates on all student loans. Some senators this afternoon are going to call for a short-term, political fix for just 40 percent of loans, but that's no fix at all when we have a plan to help all students that we can pass quickly."
Carper said: "In a few days, interest on student loans will double unless Congress acts. This proposal won't please everyone, but it's a good approach that will help low- and moderate-income students afford college. It also finds a long-term solution to a problem we've only been able to solve incrementally. The cost of higher education continues to go up. We need to do our part to help students afford college, while also giving them the certainty they need to plan ahead. I'm also supporting this bill because it represents the best of the Senate -- Republicans, Democrats and Independents working together to find common ground, which is what the American people sent us here to do."
The Bipartisan Student Loan Certainty Act provides a long-term fix for all student loans while preventing rates from doubling on subsidized loans on July 1st. This bill saves students $8.8 billion in 2013 and over $36 billion in the next four years by giving students access to the lowest rates possible, allowing them to take advantage of low borrowing costs when everyone else in the economy can borrow cheaply. Most importantly, this bill strengthens borrower protections by reinforcing the 8.25% interest rate cap on consolidation.
Four out of every five students with subsidized Stafford loans take out other federal loans with rates at 6.8% or 7.9%--a one-year extension of the subsidized rate leaves these other rates at unacceptably high levels. We must put aside politics and act now to find a real, long-term solution that ensures access and affordability for all students seeking higher education.
The Bipartisan Student Loan Certainty Act Summary
Strong Borrower Protections:
Strengthens the 8.25% Consolidation Cap: Borrowers can consolidate all of their federal loans with a rate that is either a) the weighted average of the loans or b) a maximum of 8.25%. This bill requires the Department of Education to remind students in a clear and easy-to-understand way of their consolidation options.
Repayment Caps: Income-based repayment allows students to reduce their monthly payment based on their ability to repay and after 20-25 years, any remaining debt is forgiven.
Undergraduate Subsidized and Unsubsidized Stafford Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 1.85%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
If a new loan was issued today, the interest rate would be 3.66%.
Graduate Unsubsidized Stafford Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 3.4%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
If a new loan was issued today, the interest rate would be 5.21%.
PLUS Loans: Sets the interest rates on all new loans to the U.S. Treasury 10-year borrowing rates, plus 4.4%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
If a new loan was issued today, the interest rate would be 6.21%.
Student Loan Interest Rate History
In 2007, Congress temporarily lowered interest rates on subsidized Stafford loans over 4 years from 6.8 to 3.4%.
In 2012, Congress extended these low rates for 1-year at a cost of nearly $6 billion with the expectation that we would find a long-term fix during that year.
On July 1, 2013, the one year extension expires.
It is time for Congress to do its job and pass a long-term solution.