President Obama on Friday once again called on Congress to pass legislation to prevent student loan interest rates from doubling and further burdening the country’s students.
Legislation passed last year set subsidized Stafford Loan rates at 3.4%, but that deal expires on July 1. If Congress and the president can’t agree on a plan before then, rates will double to 6.8%.
“Higher education cannot be a luxury for a privileged few,” the president said, while flanked by college students in a Rose Garden address.
The average student borrower would have to pay $1,000 more next year if loan rates were to double, according to the White House’s estimate. But while Washington battles over the best way to rescue students from that additional burden, little is being done regarding the $26,000 which the average recent graduate already owes.
The president himself noted the “déjà vu” of the political fight over student loans, which resulted in the partisan showdown around the same time last year–months before the 2012 election.
Obama also denounced the new GOP House plan passed last week, which would set the new interest rate at 5% and link it to the variable rate on 10-year Treasury bonds. That legislation “fails the test,” because it would not keep the loan rate locked in at 3.4% for the remainder of the year, he said. Furthermore, it could wind up costing students even more in the long run.
“The House bill isn’t smart and it’s not fair,” he said. “I’m glad the House is paying attention to it, but they didn’t do it in the right way.”
But the band-aids proposed by Democrats and Republicans alike might only make things worse in the long run, according to The Century Foundation’s Ben Landy.
“[N]either the president’s nor the Republican plan are a good deal for students in the long run,” Landy told msnbc via email. That’s because both plans rely on a basic philosophy of “tying the educational and financial futures of our youngest and most vulnerable generation to the volatility of the ‘free market.’”
Instead of using a variable rate, the most recent White House budget includes a provision to set the fixed interest rate annually. This new fixed rate would also be based on the interest rate of 10-year Treasury bonds, but for at least the first year the rates for subsidized loans would stay at 3%. Because the White House plan does not include a cap on how high interest rates could go, five groups representing young voters—including the National Campus Leadership Council and Rock the Vote—released a joint statement condemning the plan in April.
“Students have never taken out federal student loans without a cap on how high interest can go,” they said in the joint statement. “The President stood with us by investing in higher education during his first term, and we’re concerned that his budget does not deliver the same investment this time around.”
Responding to the president’s Friday speech, House Speaker John Boehner said in a statement that there was plenty of room for compromise between the White House and Congress.
“The differences between the House plan and the president’s are small, and there’s no reason they cannot be overcome quickly,” the Ohio Republican said. “But today, rather than working to resolve the issue, the president resorted to a campaign stunt to try to score political points.”
If this all sounds vaguely familiar, it’s because Washington had a similar fight last year. That was when Congress first extended the law which keeps student loan rates fixed at 3.4%, after President Obama made an issue of it during the 2012 campaign. Though that law did lighten students’ debt burden a bit, it did little to slow the years-long explosion in student debt. This year, total student debt passed the $1 trillion milestone.
The massive debt burden a generation that is “not able to participate in consumer society in the way we’ve seen in previous generations,” said Landy in a separate phone interview. This creates a “sort of drain or drag on the economy.”
“They’re not being cars, they’re credit rating is so bad that they can’t do the things they want to … they’re not starting families, they’re not starting businesses,” he said.
Sen. Elizabeth Warren, D-Mass., has proposed a third piece of legislation to deal with federal student loan rates. Called the Bank on Students Loan Fairness Act, her bill would force the government to loan to students at the same rate that the Federal Reserve loans to banks: A rate currently as low as 0.75%.