With federal student loan interest rates set to double on July 1, Congress returns from recess facing a familiar partisan brawl with no quick resolution in sight.
“This sounds like déjà vu all over again,” President Barack Obama joked at a Rose Garden rally on the issue Friday, surrounded by college students. “That’s because it is. We went through this last summer.”
Majority Leader Harry Reid, D-Nev., announced Friday that the Senate will vote during the first week of June on legislation to avert the scheduled interest rate increase. The vote could come as an amendment to the farm bill (S 954) that is pending on the floor, but will probably be done separately, a senior Senate Democratic aide said.
The aide said the chamber is likely to vote on two side-by-side student loan proposals: A Senate Democratic bill (S 953) to extend the current 3.4 percent fixed interest rate for two additional years, and the House-passed Republican bill (HR 1911) to avert the rate hike by shifting to a market-based variable rate that is pegged to the 10-year Treasury note.
Both measures would need a 60-vote threshold for passage and are likely to fail, according to the aide, potentially pushing both sides to come up with a compromise.
Republicans have said they have no appetite for again extending the current 3.4 percent interest rate, as Congress did last June (PL 112-141) after a three-month fight. Democrats propose paying for the $8 billion cost of such an extension by closing three tax loopholes.
From the other side, Obama and congressional Democrats have said they are open to shifting to a market-based variable interest rate — as called for in the bill passed by the House 221-198 on May 23 — and they have floated their own similar proposals. But Obama contends the House GOP’s particular formula would actually saddle college students with more debt than if student loan interest rates are allowed to double as scheduled.
“The House bill isn’t smart, and it’s not fair,” the president said Friday. “I’m glad the House is paying attention to it, but they didn’t do it in the right way.”
Republicans were quick to criticize Obama for holding a “campaign style” event and argued that the president is doing nothing more than inciting partisanship on an issue where there is much agreement.
“The president appears more interested in needlessly stoking partisan divisions in Washington than helping young Americans avoid a higher interest rate on their student loans,” Senate Minority Leader Mitch McConnell, R-Ky., said.
Speaker John A. Boehner, R-Ohio, emphasized the similarities between the House bill and the president’s proposal, a point Republicans have been hammering away at.
“The bill already passed by the House provides a market-based variable interest rate, mirroring what the president proposed in his own budget,” Boehner said. “The differences between the House plan and the president’s are small, and there’s no reason they cannot be overcome quickly. With time so short and the differences between our proposals so slight, [the president’s] event was misguided and deeply disappointing.”
The House bill would peg interest rates to the 10-year Treasury note rate plus 2.5 percentage points for the subsidized and unsubsidized portions of undergraduate loans and plus 4.5 percentage points for graduate loans. Those rates would be capped at 8.5 percent and 10.5 percent, respectively, and the interest rates would be calculated yearly.
Alternatively, the White House plan would peg interest rates to the 10-year Treasury note rate plus 0.93 percent for the subsidized portion and 2.93 percent for the unsubsidized portion. It would modify the loan for graduate students to 3.93 percent above the 10-year Treasury note. The rates would remain fixed for the life of a borrower’s loan, as opposed to being recalculated yearly.
Senate Democrats and Republican have also introduced market-based rate proposals that could serve as a starting point for negotiations.
The Senate Democratic proposal (S 909) would set rates every year based on the 91-day Treasury bill, plus a percentage determined by the Education secretary. Under the plan, interest rates for subsidized Stafford loans would be capped at a maximum of 6.8 percent, and rates for unsubsidized Stafford and graduate student loans would be capped at a maximum of 8.25 percent; those caps are lower than in the House GOP bill.
The Senate Republican measure (S 682) would set the interest rate for all loans at the 10-year Treasury note plus 3 percent.
The president on Friday urged students and parents to contact their members of Congress to press them to keep the rates from doubling.
“You made something bipartisan happen” last year, he said. “That’s a powerful thing. So this year, if it looks like your representatives have changed their minds, you’re going to have to call them up again or email them again or Tweet them again.”
Humberto Sanchez contributed to this report.