Nicole Shepard, News Editor, @NicoleEShepard
Republicans and Democrats continue the debate over the doubling of student loan interest rates that took place July 1.
“We need a solution that will lift the load of our university students,”, Sen. Kelly Ayotte, R-N.H. said. “We need a reform that will not land us back here, in the very same position next year.”
Democrats are claiming that republicans caused the rate increase in killing three bills proposed in late June, which would have prevented the jump from 3.4 to 6.8 percent in interest rates for subsidized Federal Stafford Loans.
“For months democrats have argued that we need to keep interest rates low,” Sen. Elizabeth Warren D-Mass., said. “We’ve made at least three attempts to do this.”
Sen. Warren proposed a bill that would have dropped interest rates on federal direct loans to the same level at which banks borrow money from the government, which is currently less than one percent.
“I introduced that proposal because I believe that the federal government should invest in our students, not just in our biggest banks,” Warren said.
Two other bills designed to keep the previous rate of 3.4 percent locked in for one to two years were presented to Congress in June. All three bills were blocked due to a unanimous republican vote.
While the Democrats argued for locking in low interest rates, Republicans, along with President Obama, put forth a bill suggesting that interest rates on student loans should not be locked; instead they should fluctuate with the rise and fall of the economy.
“This is how everyone else has to work,” Phil Matthews, an accountant who specializes in student loan repayment, said. “It isn’t unreasonable, it isn’t even really a bad idea. It forces student loans to match economic reality.”
Changing how student loans function was a major part of Obama’s presidential campaign last year. As a result, the Obama administration instated a new policy, forming an income-based repayment plan available to qualifying borrowers. In a factsheet released by the White House on July 23, this new plan is said to be, “A fiscally responsible solution for the road ahead on college affordability.”
The new repayment plan provides that qualified borrowers will not have to pay more than 10 percent of their income. Then after 10 to 25 years, those borrowing can receive debt forgiveness, depending on their plan.
The changes trumpeted by Republicans and the President are designed to base the repayment on the borrower’s income after graduation.
“This is why they don’t want to lock anything in,” Matthews said. “It’s meant to be a long-term solution, as opposed to something that will only last a few years.”
Democrats, like Warren, are questioning this new plan and the intentions fueling it. It is projected that with the doubling of interest rates, in the next 10 years alone, will earn the federal government a profit of $187 billion.
“This money will be made off the backs of our children,” Warren said.
The White House disputes the claim that the $187 billion will be “pure profit” while providing no substantial explanation as to what it will account for otherwise.
“We do not condone the idea that we should use student loan profit to manage the deficit,” a White House representative said on July 23. “That is the very opposite of the long-term plan of restructuring student loans.”
While the White House claims to support capping off student loan interest rates at 8.25 percent for undergraduate students, it’s not actually written into the bill put forward.
“The major concern is what not fixing the rate could do to borrowers in the future if this doesn’t pan out exactly as the government is hoping,” Matthews said. “With just a couple of hiccups it could become a case of future generations paying for those who had the luxury of borrowing at a lower rate. It’s not a sure thing that will happen, but it’s a fair possibility.”
With both parties killing one another’s bills, it is expected that a bipartisan bill will be passed in the next week, lowering the interest rates closer to the 3.4 percent they were before. This bill will have a one-year expiration date, and thus no cap on the rate, leaving the potential to make up the difference with the students of 2015.
“It is projected that if the rates remain low, they will have to compromise by not putting a cap on the rates,” Matthews said. “Conversely, if they remain high, they are most likely going to cap them at that percentage.”
The decision must be made before the Senate and House breaks for recess on August 1.