As lawmakers head out of Washington for their July 4 recess, college students are left to watch the clock as it counts down to Monday, when government-backed student loan interest rates are set to double. Come July 1, rates will jump from 3.4% to 6.8%.
Although several proposals were set forth by both side of the aisle, lawmakers did not come to an agreement and are planning instead to revisit the issue when they return from recess. If Washington fails to strike a deal, the over 7 million students expected to take out a new Stafford loan will be paying back a much larger sum than they had hoped.
The Smarter Solutions for Students Act passed by House Republicans on May 23, ties the student loan interest rate to the market base rate, resetting each year depending on the rate of the U.S. Treasury, with a cap of 8.5%. The possibility of an even higher rate than the impending 6.8% led Senate Democrats to oppose the bill. Obama’s plan is similar to their plan in that it utilizes the Smarter Solutions for Students Act, however, it would freeze rates again this year, allowing students to lock in a 3.4% rate for the life of their loans. Eventually, a fixed rate would be set for future loans. Opposition to both bills stems from concerns that market fluctuation will cost students and their families more in the long run.
“The biggest threat to our national security, that’s not educating out young people,” said New York Rep. Gregory Meeks, Saturday on Weekends with Alex Witt. Meeks, a Democrat who supports Obama’s plan over the Republican plan, is still not sold on tying loan rates to the market, comparing them to “predatory mortgage rates” which he recalls ”affected overwhelmingly middle class and poor people.”
Iowa Democratic Sen. Tom Harkin, who chairs the Senate Health, Education, Labor and Pension Committee, told reporters he hope to “put this off for a year,” urging lawmakers to extend the current rates that long while a better solution is penned.
Other lawmakers are not keen on putting the matter off another year. “Senate Democrats continue to block reform and insist on kicking the can down the road,” said Senate Republican Leader Mitch McConnell.
According to new study by Fidelity, 70% of the class of 2013 is graduating with $35,000 in college-related debt.
The Senate is expected to reconvene and vote on the issue July 10. Depending on what course of action they decide to take, they may alter the student loan rates retroactively.