Late Wednesday night, after a bill to roll back to 3.4 percent the rate for subsidized Stafford student loans was filibustered on the Senate floor, a group of senators – including Sens. Tom Harkin (D-Iowa) and Richard Durbin (D-Ill.) – did the unthinkable. They agreed to a bipartisan plan put forward by Sens. Joe Manchin (D-W. Va.), Lamar Alexander (R-Tenn.), and Tom Carper (D-W. Va.) that would increase, not stabilize or lower, borrowing costs for students above what they had been before rates doubled on July 1.
According to news reports in The Huffington Post and Politico, after a long meeting in Durbin’s office, senators agreed to work off of the bipartisan plan that would peg student loan interest rates to the 10-year Treasury note, plus 1.8 points for undergraduate loans and 3.8 points for graduate loans. At this time, that means rates would be 4.37 percent for undergraduate loans and 6.37 percent for graduate loans (the Treasury note ended at 2.57 percent Wednesday night). Democratic Sens. Harkin and Durbin insisted that the plan have a cap on interest rates at 8.25 percent. and Republican senators agreed. If this plan passes the Senate, it is likely to also pass the House.
So it seems Congress has finally reached a decision on student loans. Good news, right? Wrong.
Under the proposed plan, student loan rates would stay low for the first few years, but these savings would be paid for by future borrowers who would see significantly higher loan rates as the economy improves. The bill would cap undergraduate rates at 8.25 percent and graduate rates at 9.25 percent. but with students already struggling to pay off their loans at 3.4 percent. how can this new rate possibly work for them?
The Congressional Budget Office estimates that by 2016 undergraduate loan rates would rise to way above the current rate of 6.8 percent. With the cap, that means in just three short years student loan rates will already have reached the limit of 8.25 percent.
As if the government wasn’t already making enough money off our students, Republican Senators demanded yesterday that the deal be deficit-neutral. The government has already made $15 billion in profit this year from loans made in previous years, and according to the CBO they will generate $184 billion in profit for loans made from this fiscal year through 2023.
Durbin has spoken out against raising the student loan rates for months, and Sen. Harkin even spoke for 45 minutes yesterday during floor debate about the dangers of pegging the student loan rate to the 10-year Treasury note. Yet today they are singing a different tune – as long as there is a cap at 8.25 percent. they are fine with letting rates rise higher and higher until they reach that point. And that point isn’t too far in the future.
The effects of these different plans are clear. With the interest rates at 6.8 percent, the average student will pay an additional $2,564. Under the bipartisan plan this number will fluctuate depending on the loan rate at the time the loan is taken out, but CBO estimates show that students are forecasted to start paying more around 2016. However under alternative progressive plans, such as that of Sen. Elizabeth Warren (D-Mass.), the average student will save $6,552 by paying the same interest rate as big banks.
Meanwhile, in all this discussion on student loan rates Democratic and Republican senators are failing to address the real issue – college affordability. Why are students having to take out these huge loans and graduate with massive amounts of debt, and why are colleges continuing to price more and more students out of the education that they need? These are the questions we need our policy makers to address.