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Mr. HARKIN. Madam President, I take the floor today to follow up on what my good friend and colleague Senator Reed from Rhode Island just spoke about; that is, the looming interest rate hike on student loans that is confronting us in this country.
To recap a little bit, in 2002 the Congress passed a fixed rate. We had variable rates before, but it passed a fixed rate on student loans of 6.8 percent. In 2007 it was lowered. That lasted for about 5 years, and then it was going to go back up to the fixed rate of 6.8 percent last year. The Congress passed a 1-year extension of that at 3.4 percent. It is that 1-year extension which expired on July 1 of this year. So if the Congress does nothing, the interest rates go back up to 6.8 percent.
In the midst of all of this, a lot of ideas have been floating around about what to do on student loans and the interest rates. Well, I think we have to keep in mind that if we go from 3.4 percent to 6.8 percent, that is a doubling. More than 7.2 million college students will be required to pay an average of $1,000 more in interest per loan if we let it go back to 6.8 percent. Again, that is real money for our Nation's students.
Student loan debt currently exceeds $1 trillion. It is second only to mortgage debt in the United States, and it is higher than credit card debt. The average student now graduates with more than $26,000 in student loan debt. So now is really not the time to make them pay even more.
Now, luckily, we again have a window of time to act before the doubling causes any real harm. It doubled on July 1, but we had the Fourth of July week, so if we were to again extend the 3.4 percent for another year, it would do no harm. It would do no harm to anyone.
That is why I am urging my colleagues to support S. 1238, the Keep Student Loans Affordable Act of 2013. This responsible, fully paid for legislation, introduced by Senator Reed of Rhode Island, Senator Hagan, Senator Franken, myself, and many others, is a viable solution to keeping student loan rates affordable for our middle-class students and families struggling to afford college.
I might add that this bill is supported by 49 student, youth, consumer, civil rights, and educational organizations across the country. Here is a letter they sent to Leader Reid and Senator McConnell dated June 28 to support S. 1238. They said:
We applaud this bill, which creates a workable solution to maintaining current low rates while Congress seeks to reauthorize the Higher Education Act to reach a comprehensive solution to the student loan crisis that is good for students. We expect a vote on S. 1238 on July 10, 2013, allowing the proposal to take effect in time to protect incoming and returning students this fall.
That is what is happening tomorrow. Tomorrow we will vote on cloture on this bill--cloture, so that then we can get an up-or-down vote on whether we are going to extend the 3.4-percent interest rates until next July. I will in a moment say why that is so important.
The letter goes on to say:
Many of the other proposals being discussed would result in even higher costs to students than if interest rates were simply allowed to double.
That is, to go to 6.8 percent.
The bipartisan Student Loan Certainty Act put forth by Senators Manchin, Burr, Coburn, Alexander, King and Carper would drive up borrower costs by $1 billion and tie interest rates to the market without a cap to protect students. This proposal would pay down the deficit on the backs of students, trading national debt for student debt. It is unacceptable to use student loans as a vehicle for deficit reduction, especially when the Federal Government is projected to make $51 billion on student loans just this year.
So that will be the vote tomorrow.
I ask unanimous consent that this letter, along with the list of the organizations supporting the 1-year extension, be printed at this point in the Record.
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Mr. HARKIN. That is really the vote tomorrow. Are we going to keep 3.4 percent or are we going to allow it to double? That is the essence of the vote tomorrow.
There are a lot of different ideas floating around here about what to do and how to do this, but in just about every single case, every one of those bills, if you project out over the next couple of years, will raise interest rates higher than 6.8 percent. So, again, that is why extending it for 1 year is so important.
The proper place to address this issue is in the reauthorization of the Higher Education Act. That expires this year. Our committee will be having hearings. We have had some already. We are going to have more this fall. We expect to be able to put together a reauthorization bill for early next year. This is where it belongs. This is where the student loan provision belongs--in the Higher Education Act. Here is why. College affordability is more than just what your loans are costing you; college affordability also has to do with the tuitions being charged by colleges. Why are the tuitions what they are? It also has to do with the lack of transparency from one college to another. What do courses here cost? What do courses there cost?
What is built into that cost per course hour, for study hour at this college compared to this other college?
There are a lot of other costs that go into college affordability other than just the cost of student loans. So to separate out a student loan and treat it as some kind of a separate entity is to kind of ignore all of the other things that affect the cost of college education. That is why it really needs to be part of a comprehensive solution, including Pell grants. Maybe we want to change some of the structure of Pell grants. Maybe we want to take a look at exactly what it is that we as a society want to do in terms of making college more affordable. What kind of interest rate base do we want? Do we want a rate based on the 91-day T-bill, which we have had in the past, or, as others are proposing now, do we want to go to a 10-year T-note rate? What does that mean? That has never been fully fleshed out. That only comes out through hearings conducted by the committee. Should it be based on the 3-month Treasury note? There are all kinds of different ideas floating around, and no one really knows what is the best solution.
I pointed out the necessity for a cap on these loans. I think about my own experience when I started college in 1958 when there wasn't such a program. But in 1959 and after that we had what was called the Eisenhower loan program, the National Defense Education Act. I went to a window at Iowa State University and I borrowed money. I borrowed money at 2 percent. I recently looked up the interest rate during that period of time, the 10-year Treasury note at that time, in 1959, 4.43 percent, 4.12 percent, 3.88, 3.95--all the years I was in college. Yet I borrowed money at 2 percent. So our government, our representatives, decided it was worth it for America to subsidize the loans I had, not charging the 10-year Treasury note but actually half of that--almost half of that. Think about that.
Not only did our society, our government, say: We want to have a fixed rate of 2 percent no matter what the market rate is, all the time I was in college--when I was a sophomore, junior, senior--there were no interest charges. The interest rate clock did not run. Well, then I went in the military for 5 years. During the 5 years I spent in the military, there was no interest rate clock. I then got out of the military and went to law school. I spent 3 years in law school--no interest rate clock. Then after I got out of law school, I had a 1-year grace period of no interest rate. So add it up--almost 10 to 12 years that I had no interest rate charges. Not until after I was out of law school for 1 year did the interest rate clock start to run. Then I had to pay back the loans.
That is what our society, our government, our people decided to do for me and for students of our generation in the late fifties and sixties and seventies. That is what they decided to do. Now we hear, well, no, now we have to go to a market rate. We have to go to a Treasury note of 10 years plus something.
I only talk about this to show the contrast between what our country was willing to do for students of my generation and what we are trying to do for students of this generation. We are going to sock them with higher interest rates. That is why student debt is so high. That is why it exceeds credit card debt in this country--because we got away from understanding that subsidized rate was an investment in the future of our country. It was an investment in getting kids through college and not putting a mountain of debt on their heads so that when they got out, they could get married and raise families, start to make money and buy good consumer items such as cars and homes and all kinds of things rather than paying back their debts for the next 10 to 20 years. So we have gotten away from that.
These are the kinds of things we have to kind of think about as we reauthorize the Higher Education Act. What is it that we are willing to do to invest in this new generation of students in terms of getting them an affordable college education?
In moving forward, I appreciate the efforts of others who have come forward with ideas, but there is still a divide here. Here is the divide. I think those of us in our caucus, in the Democratic caucus, have said we have two key principles we want to uphold: Any deal on interest rates should not reduce the deficit on the backs of students. We should not trade national debt for student debt. No. 2, we need to keep in place an interest rate cap--an interest rate cap--as a key consumer protection to shield students from exorbitant rates in the future.
I have the highest respect for our President. I served with him here; he was on our committee. I only wish that perhaps they had talked to us a little bit before they came out with their proposal, but President Obama came out with a proposal on student loans. He was the first President--not Democratic, but the first President, Democrat or Republican--to propose going from a 91-day T-bill rate to a 10-year Treasury note. No other President ever suggested doing that.
Secondly, no President since 1958 has advocated removing the cap. President Obama, in his proposal, proposed removing the cap.
I believe it is safe to say our caucus has said no, we are not going to do that. We are not going to lift this key consumer protection of having an interest rate cap. If we are going to go to a 10-year Treasury note, then what is it that we do? Do we do it as they did for me where they subsidize it below it? Do we add something onto it, and how much do we add onto it?
Again, we have, as I said, two key items. Interest rates should not reduce the deficit on the backs of students, and we need to keep in place an interest rate cap as a key consumer protection.
I might point out, this has happened before. We had an interest rate cap in the 1990s when we had a variable rate. The cap was at 8.25 percent. Five times in the 1990s interest rates went above that. The cap protected students five times.
That is why the bill that has been put up by the Republican side, S. 1241, fails to meet both those principles. Their bill, like the House GOP bill and S. 1003, is worse for students over the long term than if we let rates double. S. 1241 would raise nearly $1 trillion by charging students higher interest rates over 10 years, using net revenue for deficit reduction. This bill lacks an interest rate cap, an essential protection for students, as I said, that has been in place since 1958.
According to the CBO projections of the 10-year Treasury note--and that is what we have to live with, the CBO projections--under the proposal of S. 1241, which I think Senator Alexander and others have put forward, graduate students relying on Stafford and PLUS loans will see higher interest rates starting in 2016, right here.
I saw a card about this that said under this bill the graduate student loans would be 5.21 percent. That is true here. Then it goes up in 2014, 2015, and then in 2016 it goes above the fixed rate of 6.8 percent and keeps going up to 8.6 percent from then on.
Students understand this. They looked at this and said: Well, gee, here, this is kind of like bait and switch. We get a couple, 3 years here where they are lower, and from then on everything is higher for us. We don't want this.
By 2018, on the undergraduate loans, subsidized and unsubsidized loans, it is at 7.1 percent. It is even more than the 6.8 percent that is in permanent law.
Again, I repeat, we have always had an interest rate cap. For as long as we have had student loans, we have had an interest rate cap. Even when we had a variable interest rate from 1992 to 2006, as I pointed out, five times we bumped up against that cap, so students were protected.
I have read in S. 1241 the authors stated there is a cap. Does this plan have a cap? It says yes.
There is a consolidation cap which we already have in law, by the way. We already have a consolidation cap in law. They keep it. But a consolidation cap is not a substitute for an interest rate cap. It is apples and oranges. One is a repayment mechanism. That is a consolidation cap. The other is a consumer protection called an interest rate cap. A consolidation cap is not a real cap.
Look at it this way. Let's say interest rates go to 10 percent, 11 percent, 12 percent. It is not unheard of. We have had that in the recent past. A student is in college, and that student takes out loans at 10 percent, 11 percent, or 12 percent when they are a freshman, a sophomore, junior, or senior. During the time they are in school, interest is accruing on their loan at 10 percent, 11 percent, or 12 percent. They can't consolidate until after they graduate. Then they say they can consolidate all of their loans at an interest rate that is equal to 8.25 percent or the weighted interest rate of their loans, whichever is lower.
I pointed out that under S. 1241, the Republicans' bill, if you took out a basic loan under the basic program we have had for 10 years, at the maximum, under present law, you would pay back about $21,000 in interest and payments. Under S. 1241 you would pay back $28,000, $7,000 more. Get this--for the same loan under consolidation you pay back $69,000.
Consolidation--and that is why a lot of students aren't consolidating, because they know they are going to pay a lot more in interest charges for a longer period of time. Think about a 15-year mortgage versus a 30-year mortgage on your house.
Maybe a student would say: OK, I will consolidate. My monthly payments will be lower, but the total amount I pay back will be three, four, five times more than what it would be if I don't consolidate.
Consolidation may be useful to some students as a repayment mechanism, but it is not the same as a cap on interest rates.
The bottom line is that an interest rate cap is the only way to ensure all borrowers are shielded from exorbitant rates in the future, and consolidation is simply not a
Let's take a look at the base rate in S. 1241. That is the 10-year Treasury note. I asked my staff to take the provisions of the Alexander bill, S. 1241, and let's go back in time. What would students have been paying in interest rates? I looked at 1980, 1990, and 2000, every 10 years. Under S. 1241, undergraduate Stafford is 13.31, graduate Stafford is 14.86, and 15.86 on the PLUS loans. For 1990, undergraduate Stafford is 10.4, graduate Stafford is 11.9, and PLUS loans are 12.9. In 2000, undergraduate Stafford is 7.88, graduate Stafford is 9.43, and PLUS loans are 10.43. All of them are above the 6.8 percent that is permanent law right now, permanent in every single case because there is no cap. We have seen in the past 10-year Treasury notes as high as 14 percent.
There is no cap, so you take the 10-year Treasury note plus 1.85 percent or 2 percent, and you can see where students without a cap are going to be paying a lot more money. The 10-year Treasury note is already on the rise as the economy gets stronger. We know those interest rates are going up and that is what CBO tells us. Without a cap in place, students are highly vulnerable to this.
Again, I want to go back to this chart here. This is why consolidation is something students need to think about. This is $41,000 in Stafford loans borrowed over 2 years by a graduate student enrolling in 2018. Under current law, they would pay back $21,716 in interest payments. Under S. 1241, they would pay more, $28,607.
But then they say: Well, you can consolidate. If you consolidate, you are going to pay $69,185. Look at the difference.
As I say, a consolidation cap is just a way to stretch out your repayments, which means you are going to pay a lot more money over time. I am not certain that is what we wish to do to students over the next 20 to 30 years, burden them with even more debt for over 20 to 30 years.
Again, as I have said before, I think S. 1241 is not good for our students, it is not good for the middle class, and for America's competitiveness in the future. I think we ought to take the time to do it right.
People say: Well, gee, we had an extension of this last year until this year and you didn't do anything, so we should not extend it again. There are probably a lot of reasons why Congress didn't do it. Last year was an election year. We were gone a lot of time in the fall for people to campaign for reelection for both the House and the Senate, and it was a Presidential election year. Nothing was done, basically, from October on.
Then there was the whole deficit reduction measure that had everybody tied up in knots, and the sequester. We were trying to work that out the first of the year, and the budget bill, getting that done. There are a lot of reasons why this was not high on the agenda. There was a lot of significant legislation going on here, plus, as I said, last year was an election year and a campaign year.
What is different about next year is this: The Higher Education Act expires this year. We need to reauthorize it. We need to reauthorize it in a timely fashion.
As I said, this whole issue of student loans is only one part of it. There are a lot of other parts, such as college accountability. What are their graduation rates? What is their charge for per-course study hour? How do they figure that amount of money? What are colleges doing to keep tuition rates low? What are States doing to support higher education?
We have had a number of hearings in our committee already on the increasing cost of college education and what is causing it. There are a lot of different factors, but the one factor that overrode them all, the one consistent, overriding factor of why college costs are going up, Federal costs--why Federal costs of college education are going up--is because over the last 20 to 30 years States were reducing their support for higher education.
State legislatures have figured this out. They figured out that if our State government doesn't put more money into higher education, students are going to get Pell grants. They will get these loans. The Federal Government will back them up. What has happened is States have reduced their support for higher education and shifted it to the Federal Government.
What should be the States' responsibility in higher education? What should be our partnership with the States in supporting higher education? That is, again, an issue for the reauthorization of the Higher Education Act, and what we are going to do about student loans in the future is a part of that.
That is why I argued for an extension for 1 year, because we can look at it in a comprehensive, systemic way as to what we ought to do about college affordability. This is why I say the best course of action to follow right now, both for students, for middle-class families, and for our country, for getting a better higher education bill that addresses all of this--the best thing to do is a 1-year-more extension.
As Senator Reed said earlier, there is a loophole in the law that deals with individual retirement accounts. IRAs were meant for retirement, but now
there is a loophole in the law that allows millionaires and billionaires to take IRAs and give them to a younger generation, which they then take over a period of years--and a lot of times escape paying taxes for years and maybe even for decades.
Everyone agrees it is a loophole. It was never intended to be there for IRAs. By closing that loophole, we can pay for the 1-year extension at 3.4 percent. It seems to me the students need this loophole in IRAs more economic-wise than the top one-tenth of 1 percent in our country. So that is why I think we just need to take a deep breath and quit trying to rush to judgment.
There has been more bad legislation in my 39 years here that has happened because we wanted to rush to judgment on a deadline rather than taking the time to go through the committee structure, having the hearings, working things out on both sides of the aisle through our committee, and then bringing decent legislation to the floor.
Quite frankly, I think we can point to the immigration bill. That is what was done there. This immigration bill didn't just pop up on the floor. It went through a long process in committee, with hearings and witnesses and debate and amendments.
That is what we need to do here. Don't rush to judgment. I am afraid if we rush to judgment the losers will be the students and middle-class families and, quite frankly, our economy in the future if we move to a system that is going to cause higher and higher interest rates way out into the future for students just entering college.
So I plead with my colleagues to support the cloture vote tomorrow to give us this 1-year extension. Let the committee do its work properly and bring a proper bill to the floor that will be open for amendment. People will be able to amend it at that time. I believe that is the deliberate, thoughtful, and the responsible way to address this issue--not just to vote something out that is separate and apart from everything else that adds to the burden of student debt in this country.
So I plead with my colleagues to do the responsible thing and extend the 3.4 percent for 1 year, and we will address this next year in the Higher Education Act.
With that, Mr. President, I yield the floor.
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