Despite Obama Veto Threat, Student Loan Bill Passes The House
With less than six weeks left until the interest rate on Stafford loans are set to double if Congress doesn't act, proposals on how to address these federal interest rates have been pouring in from all branches of the government.
On Thursday, the House passed the Smarter Solutions for Students Act, which would put Stafford loan interest rates in step with financial markets from year to year, ending a system in which rates are set by Congress. This "simple" solution likely won't get far, as it faces opposition from Senate Democrats who have a competing bill that would extend the current interest rate of 3.4 percent for two years, giving Congress time to consider a long-term approach to address the growing student debt crisis that impacts 38 million Americans.
President Obama also threatened to veto the bill, calling it the "wrong approach" for students and their families, citing the lack of transparency and clarity for student and parents who try to garner the true price tag of borrowing for college, missing repayment options for borrowers who don't attend school anymore, and shifting the burden of reducing the deficit on the shoulders of student loan borrowers among others.
In response to the House's passage of the bill Carmel Martin, executive vice-president for policy at the Center for American Progress, our parent organization, said in:
The decision by the House of Representatives to approve Rep. Kline’s proposal is a step in the wrong direction for students and the economy. Rep. Kline’s bill taxes students to pay down the deficit. Congress should act to stop rates from doubling and build in protections for students to help them manage their debt. The House measure would divert $3.7 billion from the program to deficit reduction and result in an increase in student debt of close to $4 billion over what borrowers would pay under current law.
Campus Progress Director Anne Johnson agreed:
Instead of bringing relief to the millions of hardworking students and families who rely on these loans, the proposal would actually make them more expensive and exacerbate the student debt crisis. Rep. Kline’s bill also leaves out essential protections such as expanding income-based repayment and allowing current borrowers to refinance their loans. Young Americans need a solution that will make college more affordable and put them on a path to economic security, not make the problem worse.
The House bill, which was sponsored by Rep. John Kline (MN), does have a ceiling for interest rates but it might be too high according to Congressional Budgetary Office projections. For instance, under the Kline bill, a student who borrows the maximum amount for subsidized Stafford loans would have to pay $8,331 in interest payments over the next four years. If rates double, that same student would actually save money over the next four years—about $1,047 worth, when compared to Kline's plan. Keeping the interest rate at the current 3.4 percent, that student would save nearly $4,000 in interest payments.
The bill was passed 221 to 198, with four Democrats voting for the bill.
Obama's budget proposal would also attach Stafford loan interest rates to the financial market, and his plan doesn't include a cap for interest rates, which could cost future generations. But Obama's plan does keep the interest rate fixed throughout the life of the loan to give borrowers the advantage of predicting the true cost of borrowing.
Education Secretary Arne Duncan touted the president's budget proposal on Wednesday and acknowledged efforts in the Senate to prevent rates from doubling in July.
"President Obama has put forward a comprehensive solution that will help middle-class students and their families afford college by lowering interest rates on July 1, without adding to the deficit," Duncan said. "Senator Harkin and Congressman Miller have also been leaders within Congress to prevent rates from doubling for students and families”
Overall the top priority for Congress, Duncan said, is to stave off the hike.
Naima Ramos-Chapman is an associate editor at Campus Progress.