December 21, 2001

Senate Approves Legislation on Student Loan Interest Rate

The Senate Dec. 14 approved by unanimous consent legislation (S. 1762) aimed at extending the current interest rate calculation for student loans under the Federal Stafford Loan Program. Under current law, the existing standard would expire on July 1, 2003, thereby altering the financial instrument on which student loan interest rates are indexed. Such a move would potentially raise the costs of making loans to the point that lenders could be forced drop out of the program. Under S. 1762, use of the current formula would be extended until July 1, 2006 at which time the rate would covert to a fixed rate of 6.8 percent. If financial conditions forced lenders to charge a higher rate, the federal government would make up the difference. The bill is supported by both the education and lending communities. The House Dec. 20 failed to pass the bill under a suspension of the rules after a Democratic attempt to consider other legislation was blocked. H.R. 1762 is expected to be reconsidered under "regular orders" early next year.

Information: Jonathan Fishburn, AAMC Office of Governmental Relations, 202-828-0525.