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Student Loan Interest Rates Still Tangled Up In Congress

Student debt in the United States has already surpassed the country's auto loans and consumer credit card debt. A student loan bubble looms on America's horizon, and promises dark times should it ever burst.

And earlier this month, the student loan problem worsened.

Federally subsidized Stafford loan interest rates doubled from 3.4% to 6.8% after Congress missed the July 1st 2013 deadline, and instead recessed for the Independence Day holiday.

The failure sparked frustration amongst student advocates nationwide.

However, Congress is able to retroactively "fix" the damage done by the soaring rate increase – that is, if Democrats and Republicans can come to an agreement on the matter.

So far, no dice: an emerging bipartisan Senate deal hit a stumbling block last week.

Even though the House was able to pass its own plan in May, the Senate is still at an impasse.

Democratic senators are avoiding the prospect of trying to "balance the budget on the backs of students."

On the other hand, Republican senators want a plan that doesn't risk adding huge sums to the deficit.

Here's what we've got so far:

The tentative deal ties Stafford loan interest rates with rates on the 10-year U.S. Treasury note.

Additionally, there would be a capped interest rate of 8.25% for undergraduates and 9.25% for all other loans.

Republicans would get a link between the financial markets and borrowing terms through this proposal.

Democrats would get a guarantee that interest rates would not reach 10%, their proverbial line in the sand.

The crux of the matter is that Senate Republicans want rates tied to the market, so student loans aren't subsidized by taxpayer. Meanwhile, Senate Democrats are pushing for interest rates that benefit students, not government coffers.

Thus, the bipartisan agreement hinges on a plan which is revenue-neutral.

Unfortunately, the deal snagged when the nonpartisan Congressional Budget Office (CBO) concluded it would cost the government $22 billion over the next 10 years.

That number gave justifiable pause to both parties –

The CBO numbers reflect how expensive a cap on student loan interest rates can be to taxpayers.

And so it's back to the drawing board for the Senate.

The pressure for Congress to reach a deal boils as our warm summer days tick away. Come August, students will begin taking out their loans.

If a deal isn't struck by then, millions of students will start the school year with borrowing terms two times higher than when school let out.

Congress' Joint Economic Committee determined the increase would cost the average student roughly $2,600 extra.

White House spokesman Jay Carney said of the negotiations, "There is no question that there is a compromise available on this important issue and that the sides have not been that far apart and we just need to get it done."

Lawmakers involved in the negotiations include Sens. Lamar Alexander, R-Tenn., Richard Burr, R-N.C., Tom Coburn, R-Okla., Tom Harkin, D-Iowa, Angus King, I-Maine, Joe Manchin, D-W.Va., Jack Reed, D-R.I., and Majority Whip Dick Durbin, D-Ill.

White House and Education Department officials have held lengthy meetings with Senate leaders over the past several days.

Last Thursday, Sen. Alexander stated that he has been keeping other senate Republicans in the mix and they seem of like mind:

"They seem generally comfortable. I don't have their commitments to vote for it yet, but we know we won't get everything we want, and as long as the Democrats understand that too, we'll probably have a pretty good result."

It seems to me that Congress' feel-good faith in itself has students biting their nails down to the quick.

And are student loan interest rates really the main issue the country should be focusing on?

Certainly the issue of the doubling rates needs to be immediately addressed, but it's just one aspect of a much larger problem.

I think Jim Kessler, senior vice president for policy at the centrist think tank Third Way, hit the nail on the head in his commentary:

"We're chasing higher, constantly increasing tuition costs. That's the big education finance problem in America right now. The cost of college tuition has increased faster than inflation for 33 years…There's a point where we have to ask ourselves, 'Are we subsidizing tuition increases or are we really making college more affordable for people?'"

Further increases in student debt loans spell disaster for the US economy; find out why the Student Loan Bubble is the Next Subprime here

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Join the conversation. Click here to jump to comments…

  1. Josh | July 17, 2013

    The rate doubled after the Republicans voted against and defeated a Democratic proposal to freeze the rates earlier this year. This vague "fiscal responsibility" slogan can be used to justify hurting students and blocking hurricane disaster relief to blue states, yet apparently doesn't apply to our all-important defense spending.

    • Tara Clarke | July 19, 2013

      Freezing rates creates its own set of problems. Namely, an absolutely massive increase to the deficit.

      • Josh | July 23, 2013

        The student loan debt owed to the federal government is a tiny drop in a huge deficit bucket.

        If that thinking- we can't do anything unless it's good for the budget- was used elsewhere, we'd see all spending cut. There are political agenda items that they focus on, while ignoring their own propaganda in all other areas.

  2. H. Craig Bradley | July 17, 2013


    In many cases, college no longer pays ( the return on your time and money simply is not there, in a positive sense). Our society does not need any more four-year degreed, unemployed applicants, it needs those with the necessary technical training. Some 2-year colleges are up to it with partnerships in the community, but others are just advanced high school with remedial math and English classes. Fact is, a great many of today's college freshmen are simply not college level material and probably will never graduate. So, they go for a year or two and then are stuck with no degree and a big student loan debt. This can not continue through the next recession.

    • William H Macy | July 18, 2013

      You are 100% correct!!! What is worse is that "college kids" feel like they are better than everyone else.

      So they refuse to work REAL jobs, i.e. labor jobs, fast food, construction. . ., because they FEEL LIKE their degree puts them above such "uneducated work."


      Your art degree won't make you jack. You NEED TO PAY BACK THE MONEY YOU BORROWED.


      • Josh | July 19, 2013

        Haha and here I thought Fargo was William H. Macy's best comedic work!

  3. Steve D. | July 18, 2013

    Suppose the college loan money was backed only by private enterprise, and not at all by the full faith and credit of Uncle Sam. You are a banker, and an 18 year old soon-to-be-freshman in college wants to borrow money to pay for his/her education. Want to know what question(s) I believe you should ask? (Keep in mind that I have taught science and math at a community college for 22 years, and that definitely informs and influences what I would want to hear as answers to those questions.) Well, here are those questions:
    1. In what field do you propose to pursue your degree? (Best answers include STEM fields and allied health areas-especially nursing. Oh, STEM is an acronym for Science, Tech, Engineering and Math.)
    2. If your field requires a bachelor's degree or higher, are you pursuing the first two years of your college education at a community college? (Best answer is yes-costs of attending the community college can be as low as 1/4 of the cost to attend a public university-even greater difference with private 4-year schools.)
    3. Do you need to take any developmental (formerly known as remedial) courses? (Best answer is that the kid is ready to take college level math, science, etc. courses that math and science majors would take for their degrees. No developmental coursework needed.)
    4. If I agree to loan you the money, I will require that you send me progress reports (copies of your grades) and a copy of your next-semester schedule (to see if student is still in a preferred major); will you have any problem with that? (Best answer is that they will work hard to make good grades and not change their major to "something easier".)
    5. Do you view the cost of your college education as an investment or an expense?

    And that's not to say that the banker would not loan money wanting to get a degree outside of the "preferred areas"-but, the loan may be at a significantly higher interest rate reflecting a greater risk of not being repaid.

    • Tara Clarke | July 19, 2013

      Well said, Steve! I completely agree. It's aggravating (but no surprise) that youths usually lack the personal wherewithal to think about these questions.

      But the real travesty – and to your point – is that most young people don't have the parents, educators, or loan officers willing to take the time to ask them these kinds of questions. It amazes me how long this has gone on, and how simple of a fix it could have been if recognized earlier on.

      Thanks, everyone, for your comments.

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