With just six weeks left until subsidized student loan interest rates are set to increase from 3.4 percent to 6.8 percent for new loans, lawmakers are scrambling to find a solution. Over the last week, two bills have been released in the Senate, in addition to one piece of legislation in the House.
Currently, student loan debt exceeds $1 trillion. Any changes made to subsidized student loan interest rates will have a significant impact on future and currently enrolled students and their families ability to pay for higher education. With multiples bills including varying language circulating the Chambers, it important to note what the differences are between these three bills and how they vary moving forward.
The Student Affordability Act of 2013
- This bill was introduced on Wednesday by Senator Jack Reed (D-RI), Senator Tom Harkin (D-IA), Senator Harry Reid (D-NV) and Senator Patty Murray (D-WA). The proposed legislation would provide a temporary solution and secure low interest rates until the reauthorization of the Higher Education Act, which is set to expire at the end of the year.
- The bill would extend the 3.4 percent rate for subsidized Federal Direct Stafford loans for two years by amending the Higher Education Act of 1965.
- Funding for this legislation would come from closing tax loopholes for tax-deferred accounts such as IRAs and 401(k)s, extending limitations on deductions of interest paid by an expatriate entity and the elimination of a special tax loophole for the oil industry.
Bank On Student Loan Affordability Act of 2013
- Stating that “we shouldn’t be profiting from our students who are drowning in debt, while giving a great deal to the banks”, Senator Elizabeth Warren (D-MA) introduced legislation late last week that would provide students with an opportunity to receive loans at the same rate that large banks pay to borrow from the federal government
- The bill would provide a one-year fix to the approaching interest rate hike.
- The bill would set the rate for federal subsidized Stafford loans at the primary interest rate offered through the Federal Reserve on July 1, 2013.
- While funding would come from the Federal Reserve, the loans would still be administered by the Department of Education as they are today.
The Smarter Solutions for Students Act
- Today the Smarter Solutions for Students Act (H.R. 1911) introduced by Chairman John Kline (R-MN) and was voted out of the House Committee on Education and the Workforce and will next move to be considered on the House floor.
- The bill aims to provide a long-term solution for student loan interest rates.
- Subsidized and unsubsidized Stafford loan calculations would be based on the 10-year Treasury note, in addition to 2.5 percent for undergraduates.
- For graduate students, subsidized and unsubsidized Stafford loan calculations would be based on the 10-year Treasury note, in addition to 4.5 percent for graduates. This would also be the same cost breakdown for parent loans.
- The proposed legislation includes a cap of 8.5 percent for Stafford loans and PLUS loans would be capped at 10.5 percent.
While the legislation in the House provides a long-term solution, there was a large amount of opposition from Democrats within the committee advocating for more time to find a comprehensive solution. There are also concerns with a recent Congressional Budget Office (CBO) report highlighting the possibility that rates may rise and students would be forced to pay at that higher level. As for the bills in the Senate, people are applauding Senator Warren on her legislation, there is hesitation on moving the legislation forward due to the cost of implementing the bill.
We will continue to keep you updated as legislation progresses in the coming weeks.
“Deadlines just aren’t real to me until I’m staring one in the face.” – Rick Riordan, The Lightning Thief