As part of their latest effort to rebrand the GOP as a more caring party, House Republicans are scheduled this week to put forward a student lending bill called the “Smarter Solutions for Students Act.” But the label is misleading. A more appropriate name would be the “Making College More Expensive Act.” (Indeed, that’s what House Democratic Whip Steny Hoyer calls it.)
The bill changes the way interest rates are set, making the rate on every loan vary each year—similar to credit card rates and the flawed variable-rate mortgages that played a role in the 2008 Wall Street crash that sparked the recession. Although touted as a lifeline that would keep student interest rates from doubling from 3.4 percent come July 1, the bill would still leave students paying a much higher rate of interest than they are paying now.
Interest rates for Stafford Loans would be set by adding 2.5 percentage points to the rate of high-yield 10-year Treasury notes, with a cap of 8.5 percent. At 1 p.m. Tuesday, that rate was 1.94 percent. The annual interest rate on Direct PLUS loans would be 4.5 percentage points above the rate on high-yield 10-year Treasury notes, with a cap of 10.5 percent.
“In seven out of the next 10 years, interest rates under the House Republican proposal would be higher than the status quo, meaning it would simply trade lower interest rates today for higher rates and more debt down the road,” said Rory O’Sullivan, policy director for Young Invincibles, a youth advocacy organization. “Moreover, interest rates on some loans could still reach double digits, and the proposal sets rates in a way that makes more money off students and puts it toward deficit reduction.”
Already debt-ridden families and jobless graduates would be forced to pay down our government’s debt while fat cats get away scot-free. The CBO predicts the bill will save the government an estimated $3.7 billion over 10 years, but at a staggering cost to the struggling middle class. “In the first 10 years alone, students would be expected to pay $3.7 billion more to borrow for college than under current law,” said The Institute for College Access and Success.
Putting the fate of our students into the hands of market rate forces is the wrong policy prescription to heal our economy and accelerate our recovery.
We need common sense legislation that supports students and families over businesses and banks like Massachusetts Sen. Elizabeth Warren’s alternative. Under the “Bank On Students Loan Fairness Act,” students would be able to pay back their loans at the same rock-bottom interest rates banks receive, currently 0.75 percent.
The “Smarter Solutions for Students Act” is neither smart nor a solution for 99 percent of this country. It’s time to stand up for our students and put America back to work.