Rep. Peter Welch and Sen. Bernie Sanders scrambled unsuccessfully to stave off the doubling of interest rates for student loans, and now that it’s happened, they are urging their colleagues to undo it, armed with heart-wrenching stories from students consumed by debt.
The two Vermont lawmakers have introduced bills, made impassioned floor speeches, appeared on talk shows and taken to the Twittersphere. Sanders, in particular, has dominated the “Don’tDoubleMyRate” hashtag, with nine tweets on the subject in the past two days.
The rates at the center of the political maelstrom are for subsidized Stafford loans, which increased on July 1 from 3.4 percent to 6.8 percent. (Unsubsidized Stafford loans already are set at the 6.8 percent interest rate.) Roughly 20,000 Vermonters receive subsidized Stafford loans, and the rate hike (which only affects grants awarded after July 1) will cost students an additional $1,000 based on the average student debt.
Congress is awash right now in proposals that would rescind the rate hike and change the way the rates are determined. The House passed a bill in May that neither the Obama administration nor Democratic lawmakers like. Now the Senate is trying to muster a bipartisan solution. Two of their attempts have been squashed by a Republican filibuster, and the latest effort is still being hashed out.
Welch sponsored legislation Wednesday that would hold the interest rate for subsidized Stafford loans at 3.4 percent for another year, paid for by eliminating a loophole in the tax treatment of Individual Retirement Accounts. He released the news, along with a scathing assessment of the inaction of his fellow lawmakers: “It’s outrageous, unnecessary and cruel that Congress has failed to do its job and is sticking it to the middle class in this country.”
At the organization at the forefront of making college affordable for Vermonters, there are other concerns. Scott Giles, president of the Vermont Student Assistance Corp. (VSAC), said he thinks all the hysteria about doubling rates is missing the big picture — that too many students are saddled with too much debt — and all the fuss on Capitol Hill could deter some students from attending college.
Giles supports the one-year fix that Welch put on the table, but he said the chances of Congress lining up behind that plan are looking increasingly slim. The standoff between Republicans and Democrats is beside the point for Giles because all of the long-term proposals have the same flaw — they are predicated upon being budget-neutral, which means rates will rise for some students, or parents, down the road.
The plans vary in significant ways, but they are all (Welch’s short-term plan excluded) pegged to the Treasury rate, plus a certain percentage point, which means if interest rates climb — and economic forecasts predict they will — student loan rates will as well.
If Congress went with the House Republican solution, for instance, the rate for all Stafford loans would be 4.4 percent in 2013, but if interest rates rise on pace with the Congressional Budget Office’s predictions, it would be 7.7 percent by 2018.
Under the Obama administration’s proposal, the rate for unsubsidized Stafford loans would be less than 3 percent in 2014, but it would creep up to roughly 6 percent by 2018, and, unlike the Republican plan, there would be no cap preventing rates from climbing even higher.
Both parties are taking the politically expedient way out, according to Giles, by offering “sleight-of-hand” solutions that keep rates low in the near future while allowing them to rise several years down the road.
“Right now, there’s a shortsighted debate focused on the political concern of watching rates rise.”
Scott Giles, VSAC
“Congress has decided they don’t want to give up any of this revenue and I think from a policy perspective they need to decide whether or not higher education is a social priority,” he said. “Right now, there’s a shortsighted debate focused on the political concern of watching rates rise.”
Subsidized loans, which benefit lower-income students and make up about a quarter of the federal student loans given out, are at the heart of the debate on Capitol Hill, but Giles is concerned that Congress’ preoccupation with this type of loan is diverting attention from the fact that the other types of loans — unsubsidized Stafford and PLUS loans, which are available to graduate students and the parents of undergraduate students, will increase by an even greater amount under most of the plans.
Giles says Congress is shifting expenses from one group of students to another. Many students take out both types of loans, so it could even be a zero-sum game in certain cases, he said.
Giles said it’s a good sign that student loan interest rates are actually in the news — “We have been trying to talk for a while about the fact that these interest rates are too high and a year ago we couldn’t get anyone’s attention” — but he’s worried the heated rhetoric will stoke the fears of students who are on the fence about whether to attend college.
“For people who are right on the edge of whether or not they can afford college, this feels like one more straw adding to the weight on their shoulders,” he said. “For people financially on the edge, they are thinking about this interest rate debate, and it really is potentially discouraging for them.”
