There has been a flurry of legislation proposing solutions to the pending doubling of some student loan interest rates on July 1, 2013. Unless Congress acts soon, the interest rate on federal student loans will increase from 3.4% to 6.8%. Below is a comprehensive summary of legislation introduced as of this publication:
Student Loan Bills Reported from Committee:
H.R. 1911, Smarter Solutions for Students Act
Reps. John Kline (R-MN) and Virginia Foxx (R-NC) introduced the bill. The legislation would tie all federal student loan interest rates (except for Perkins loans) to the 10-year Treasury note rate.
For loans after July 1, 2013:
- Undergraduate: 10-year Treasury note with 2.5% interest
- Graduate: 10-year Treasury note with 4.5% interest
- Consolidated loans: weighted average of the interest rates on loans consolidated
H.R. 1949, Improving Post-Secondary Education Data for Students Act
Rep. Luke Messer (R-IN) is the author of the bill. As introduced, the legislation directs the secretary of education to appoint a 15-member Advisory Committee on Improving Postsecondary Education to report back in a year. The Advisory Committee is to conduct a study examining:
- The types of information, including the cost of postsecondary education, student outcomes, and postgraduate earnings;
- Whether the federal government should collect and report on higher education institutions in order to assist students;
- How such information should be collected;
- How to disaggregate information on student outcomes by subgroups; and
- The ways by which the federal government may make such information available.
The Advisory Committee will include individuals representing different sectors of higher education: experts in higher education policy; state higher education officials; students and other stakeholders; representatives from the business community; experts in consumer markets; and privacy experts. The goals of the committee are to:
- Review existing initiatives to determine the most helpful information,
- Explore whether information about the earnings of college graduates would serve as an effective measure of program quality for prospective students,
- Solicit feedback from students and families, and
- Make recommendations, after consulting with the commissioner of education statistics.
This measure was reported out of a House committee on a unanimous voice vote.
Student Loan Bills that Extend the 3.4% Interest Rate for an Additional Period of Time:
The following is a compilation, in numerical order, of bills that extend the current interest rate (3.4%) for an additional period of time.
- H.R. 1433, “To extend the reduced interest rate for Federal Direct Stafford Loans”
Rep. Joe Courtney (D-CT) introduced this bill, which extends the 3.4% interest rate on Federal Direct Stafford loans to loans first disbursed to undergraduate students between July 1, 2011, and July 1, 2015.
- H.R. 1498, “To extend the interest rate for Federal Direct Stafford Loans”
Rep. Hakeem Jefferies (D-NY) introduced this bill; it extends the 3.4% interest rate on Federal Direct Stafford loans to loans first disbursed to undergraduate students between July 1, 2011, and July 1, 2014.
- H.R. 1595, Student Loan Relief Act of 2013
Rep. Joe Courtney’s (D-CT) legislation would freeze the current 3.4% interest rate for two years to give Congress time to address the matter in the reauthorization of the Higher Education Act (HEA) next year. Mr. Courtney has 128 cosponsors. He offered the substance of the bill as an amendment during the committee markup of H.R. 1911 (see above); however, the amendment was defeated 15 to 21.
- S.682, Comprehensive Student Loan Protection Act
Sen. Tom Coburn (R-OK) introduced this bill. It amends Title IV (Student Assistance) of the Higher Education Act (HEA) to set the interest rate on Direct Loans, for any
12-month period beginning on July 1 and ending on June 30, at the bond equivalent rate of 10-year Treasury bills, auctioned at the final auction held prior to June 1, plus 3%. The bill requires any savings to the federal government that result from this act’s amendment to be used for deficit reduction.
- S. 953, Student Loan Affordability Act
Sen. Jack Reed (D-RI) introduced this bill to extend the current 3.4% interest rate until July 1, 2015, to give Congress time to consider a permanent solution in the Higher Education Act reauthorization next year. The $8 billion cost of the extension is offset by closing three loopholes in the tax code.
Next steps, it appears that the Democrats will try to advance a counterproposal in the Senate sometime in June. Keep your eye on H.R. 1911, which would make student loan interest rates variable and pegged to the 10-year Treasury note with a cap to protect borrowers. The White House is objecting to H.R. 1911 on several grounds, asserting that it is the wrong approach because the legislation would not guarantee low rates. Interest rates would be reset annually (although they would be capped). The White House said that the approach would hurt low- and middle-income families struggling to finance a college education and has therefore threatened to veto the bill. In addition, the bill conflicts with Senate bill S. 953.
The most viable option may be to continue the current fixed rate for another two years by attaching the renewal to the Higher Education Act reauthorization. Education Secretary Arne Duncan told the House of Representatives that he wants to push hard in June for a market-based compromise (statement). All eyes will continue to be on Congress in June to see what, if any, compromise can be accomplished.