Senate Stuck On Student Loan Bill As Rate Is Set To Double

Student loan rates are set to double on Monday, with Congress not likely to take action before then. The debate now is on how to lower costs for students without needing annual stopgap bills. Such a measure would not pass until mid-July at the earliest and would have to be applied retroactively to undo the coming rate hike.

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Well, there is no deal yet in the Senate to keep interest rates from skyrocketing on government-subsidized loans. The rates are scheduled to double on July 1st. The House has already passed a bill, and the White House offered its own proposal.

NPR's Ailsa Chang reports that in this case, the Senate has been deadlocked for weeks over what kind of student loan plan to pass.

AILSA CHANG, BYLINE: Briana Mullen walked out on her parents when she was 17 years old, and she's been on her own ever since. Even if she wanted to borrow money from her family now, there's none there. Her parents lost first their jobs during the recession and then their home to foreclosure. So paying for college rests totally on Mullen's shoulders. She's going to be a junior at University of California, Berkeley this fall.

BRIANA MULLEN: I know that I'm paying for every class that I go to and, you know, failing a class is not an option. And at the end of the day, it's me or bust.

CHANG: And that's why Mullen is watching the looming July 1st deadline very closely. That's when her subsidized Stafford loan rate jumps from 3.4 percent to 6.8 percent if the Senate doesn't get its act together. It would mean at least another $1,300 in student loans by the time Mullen graduates from Berkeley.

MULLEN: It's so frustrating to see Congress, you know, wait till the very last minute to make a decision when, as students, we're forced to repay our loans right on time and penalized if we're even a day late.

CHANG: But brinksmanship is the way things operate on Capitol Hill, and House Republicans are having a blast reminding everyone they've passed their own student loan bill, and it's the Democratic-controlled Senate that can't get the job done. Here's House Speaker John Boehner.

REPRESENTATIVE JOHN BOEHNER: Now, I don't know what game's going on - this fake fight that's being picked - but it's not fair to these students and not fair to students across the country who need to know what the cost of their loans is going to be and what the interest rate is going to be.

CHANG: So what's this so-called fake fight all about? Well, the way the Senate Democrats put it, it's about how much profit the federal government should be making from the student loan program. Everyone seems to agree the student loan interest rate should shift to a market-based rate, one that's pegged to the 10-year Treasury bill. Basically, that's the really cheap rate the U.S. government pays when it borrows money. Under the House plan, the student loan interest rate would vary year to year, while the president's proposal would fix the rate through the life of the loan.

SENATOR ANDREW LAMAR ALEXANDER: We don't see much wrong with the president's idea. It's the Senate Democrats.

CHANG: That's Republican Lamar Alexander of Tennessee, who helped craft a Senate proposal that's pretty similar to the White House plan. Senate Democrats, like Majority Leader Harry Reid, don't want to sign on to that plan because it doesn't provide a cap on interest rates for each individual student loan.

SENATOR HARRY REID: Republicans want deficit reduction. We don't think there should be deficit reduction based on the backs of these young men and women who are trying to go to college.

CHANG: But Senate Republicans say their plan reduces the deficit by only a few hundred more million dollars than the plan many Senate Democrats want. And in the federal budget world, that's not even pocket change. Anyway, the Republicans say, their plan does cap interest rates at 8.25 percent, after a student consolidates her loans, just like under current law. Here's Tom Coburn of Oklahoma.

SENATOR THOMAS COBURN: So our cap is really a more effective cap than anything else because it's going to force them to consolidate. And remember, they don't pay on these until after they're either through school or drop out of school.

CHANG: And while this feud over caps grinds on, Senate Democrats want to pass a one-year patch that would keep the rate on subsidized Stafford loans at 3.4 percent, just to give the Senate more time to figure out a solution. They'd pay for it by closing tax loopholes.

Voting on that proposal won't happen until July 10th, at the earliest. So lawmakers say they'll make sure anything that does get passed after the July 1st deadline will apply retroactively. Ailsa Chang, NPR News, the Capitol.

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