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Congress Looks to Avoid Student Loan Interest Rate “Cliff”

May 10, 2013—House Committee on Education and the Workforce Chair John Kline (R-Minn.) and Subcommittee on Higher Education and Workforce Training Chair Virginia Foxx (R-N.C.) May 9 introduced the Smarter Solutions for Students Act (H.R. 1911) to create a market-based variable interest rate for federal Stafford loans.

The legislation is similar to the proposal in the president’s budget request [see Washington Highlights, April 12].  H.R. 1911 would set Stafford loan interest rates each year based on the 10-year Treasury Note, plus 2.5 percent for subsidized and unsubsidized Stafford loans, and plus 4.5 percent for PLUS loans.

Under the same assumptions as the president’s budget for the 2013-2014 academic year, H.R. 1911 would result in a 4.5 percent unsubsidized Stafford interest rate and a 6.5 percent GradPLUS interest rate. The president’s formula results in interest rates of 4.9 percent and 5.9 percent, respectively. Notably, the president proposed a lower interest rate for subsidized Stafford loans for undergraduate students.

Unlike the president’s proposal, H.R. 1911 includes an 8.5 percent cap on Stafford loan interest rates and a 10.5 percent cap on PLUS loans. Further, interest rates would be variable and rise or fall each year, whereas the president proposed fixing interest rates for the life of the loan.

In the other chamber, Senators Jack Reed (D-R.I.) and Dick Durbin (D-Ill.) May 8 introduced the Responsible Student Loan Solutions Act (S. 909) that would set variable student loan interest rates based on the 91-day Treasury bill, plus an additional percentage determined by the Department of Education each year to cover the cost of administering the loans. Under this proposal, interest rates are capped 6.8 percent for subsidized Stafford loans, 8.25 percent for unsubsidized Stafford and PLUS loans.

Also May 8, Senator Elizabeth Warren (D-Mass.) introduced her first bill, the Bank on Student Loan Fairness Act (S. 897), to have the Federal Reserve fund federal student loans and charge the same interest rate as it does for banks, currently 0.75 percent.

Meanwhile, Senate Health, Education, Labor, and Pensions Committee Chair Tom Harkin (D-Iowa) is reportedly working on a bill with the support of Majority Leader Harry Reed (D-Nev.) to extend the 3.4 percent interest rate on subsidized Stafford loans for undergraduate students, which is scheduled to double July 1.


Matthew Shick, JD
Director, Gov't Relations & Regulatory Affairs
Telephone: 202-862-6116


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