Last Monday, the student loan interest rates given to students on loans for the 2013-2014 academic year onward doubled from 3.4 percent to 6.8 percent as Congress floundered to find a solution to the rate increase. Congress will now revisit the loan rate issue since previous action to properly address the issue hit a dead note.
Lawmakers have time to act against the rate increase as students will not be signing off on new loans until about August, when fall semesters begin for most schools. Senate Democrats, in a swarm to fix the interest rate, scheduled a tentative date of Wednesday, July 10, to vote on a proposal to extend the pre-July 1 interest rate for an additional year. Forty-two Democrats are behind the proposal but despite a high amount of support, there remains a higher amount of uncertainty about the interest rate’s fate as policy.
Since the 3.4 percent interest rate’s extension last year, there has been lots of stance-shifting. Republicans who were in favor of a 2012 Congressional decision to extend the loan rates are going the other way.
Republicans now want the loans and rates to reflect “market factors,” which puts Congressional members who staunchly stand on either side of the fence at complete odds. Democrats defend non-wealthy students by indicating that the rate hike “would increase the average cost of a loan by $2,600” while Republicans believe the hike will “improve the economy.”
Much like Elizabeth Warren’s Bank on Students Loan Fairness Act, which would have lowered the interest rates on new students loans to match the 0.75 percent rate that the corporate banks pay, the single-year extension proposal has been expected to stall in Congress.
The predicted outcome of the clashing between Democrats and Republicans over student loan interest rates is still very much in the air. A bipartisan group of six senators has drafted a proposal that would have rates reflect 10-year Treasury notes with an additional 1.85 percent. However, this proposal is very similar to the GOP-backed Smarter Solutions for Students Act which ties rates to “market factors.”
Joshua de Leon is a writer and researcher with Ring of Fire.