Congressional efforts to revamp how borrowing costs are set for millions of college students are being thwarted by the broader partisan fight over taxes and deficit reduction.
The White House said it hopes Congress will reach a deal later this month to reverse a July 1 increase in the interest rate on some new federal student loans. The rise to 6.8% from 3.4% will affect an estimated seven million students who take out certain federal student loans for the coming school year, representing about a third of all undergraduates.
Student-aid administrators at the nations colleges and universities will begin assembling student-loan packages at the higher rates this week, said Justin Draeger, head of the National Association of Student Financial Aid Administrators. He said the money for most of those loans won't be disbursed until August, giving Congress time to retroactively lower the rates with minimal administrative consequences. But such a deal faces long odds.
While the White House and lawmakers of both political parties agree on the general parameters of a plan, they remain deeply divided over key details. Some pertain specifically to student loans, including how high rates should be set, whether rates should be capped, and whether rates on a given loan should be fixed or vary annually. But other differences are broader, echoing other recent fiscal battles, such as the largely partisan disagreements over whether taxes should be raised to pay for lowering rates and whether some revenue from student-loan interest payments should be used to reduce the budget deficit.
The Republican-led House passed a bill earlier this year that would peg student-loan interest rates to the yield on the 10-year Treasury note, an approach similar to that of a White House proposal. In the Senate, a plan proposed by a bipartisan group of five senators also would tie rates to the government's borrowing costs. But some Senate Democrats, including Sens. Dick Durbin of Illinois and Tom Harkin of Iowa, criticized this plan and the House bill because they would use some student-loan interest revenue to shrink the deficit.
Senate Democrats are preparing to vote next week on a bill to reset the interest rate on so-called subsidized Stafford loans back to 3.4% for another year. Supporters of the measure said it would
give senators more time to work out a long-term plan to overhaul how student-loan rates are ste.
One reason Congress has felt little pressure to reach a deal is that this week's rate increase isn't being immediately felt by students. The change affects only new loans, not existing loans. And payments on those loans come due six months after students leave school -- years away for most borrowers.
The average subsidized Stafford loan is about $3,400. Paying a 6.8% rate, instead of the old 3.4% rate, will boost a borrower's payments by roughly $7 per month, on average, on a 10-year repayment plan.
Sheila McKinney
