UPDATE: President Obama on August 9 put his signature on HR 1911, also known as the Bipartisan Student Loan Certainty Act, that will lower interest rates on federal subsidized Stafford student loans.
Before signing the bill into law on Friday, the President praised lawmakers from both sides of the aisle for coming together to design a “sensible, common-sense approach” to keeping student interest rates at a reasonable level so that young people have a better opportunity to go to college and receive the education that they need.
“Even though we’ve been able to stabilize the interest rates on student loans, our job is not done because the cost of college remains extraordinarily high,” President Obama said. “It’s out of reach for a lot of folks, and for those who do end up attending college, the amount of debt that young people are coming out of school with is a huge burden on them; it’s a burden on their families. It makes it more difficult for them to buy a home. It makes it more difficult for them if they want to start a business. It has a depressive effect on the economy overall, and we’ve got to do something about it.”
By Jason Bramwell
President Obama is expected to sign a bill approved by the House of Representatives on July 31 that will lower interest rates on federal subsidized Stafford student loans.
The House passed the legislation, HR 1911, also known as the Bipartisan Student Loan Certainty Act of 2013, by a 392 to 31 vote. The Senate approved the bill on July 24 by a vote of 81 to 18.
Interest rates for subsidized Stafford student loans doubled from 3.4 percent to 6.8 percent on July 1 after a temporary fix from Congress expired on June 30. Stafford loans are fixed-rate student loans for undergraduate and graduate students attending college at least half or part time.
On July 17, a tri-partisan group of senators – Joe Manchin (D-WV), Richard Burr (R-NC), Angus King (I-ME), Tom Coburn (R-OK), Tom Carper (D-DE), Tom Harkin (D-IA), Lamar Alexander (R-TN), and Dick Durbin (D-IL) – reached a compromise to retroactively move the loans to a market-based rate.
"We've all seen how Washington's involvement in rate setting is a recipe for uncertainty and confusion. Students deserve better", Congresswoman Virginia Foxx (R-NC) said in a written statement. "The Bipartisan Student Loan Certainty Act ends the temporary fixes that have failed to strengthen our nation's student loan system and offers long-term simplicity, rate caps, and an assurance that interest rates are immediately in line with the free market."
Under the bill, all newly issued student loans for each academic year will be set to the US Treasury ten-year borrowing rate, plus add-ons to offset costs associated with defaults, collections, deferments, forgiveness, and delinquency.
For undergraduate students attending college this fall semester, interest rates for subsidized and unsubsidized Stafford loans will be reduced from 6.8 percent to 3.86 percent, saving them nearly $1,500 in interest over the life of the loan, according to Congressman Joe Courtney (D-CT). On top of the Treasury note, undergraduates would pay an additional 2.05 percent and be capped at 8.25 percent.
"This bipartisan compromise reduces student loan interest rates immediately and in the near term", Courtney said in a written statement. "Unless we can begin to rein in the cost of college, lower interest rates will not be sufficient to make higher education affordable for middle-class families."
Student loan interest rates for graduate students would be 5.41 percent, plus an additional 3.6 percent with a cap of 9.5 percent. The interest rates for PLUS loans, federal loans that graduate students or parents of dependent undergraduate students can use to help pay education expenses, would be 6.41 percent, plus an additional 4.6 percent with a cap of 10.5 percent.
"This bill does not solve the long-term student debt crisis, but it will provide relief to millions of Americans working toward higher education", Congresswoman Loretta Sanchez (D-CA) said in a written statement.
Congressman Keith Ellison (D-MN) voted against the bill because he said it increases the cost of higher education for future students "at a time when college tuition continues to rise and the vast majority of families are struggling with stagnant incomes."
"The fix in the plan means interest rates on student loans could reach 8.5 percent in the next five years, much higher than the current rate", he said in a written statement. "We have a severe college affordability problem in America. Wages are stagnant, and the cost of higher education increases every year. The Student Loan Certainty Act makes it harder for future students to get into a college classroom."