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House Passes ‘Smarter Solutions for Students Act’ Despite White House, Senate Opposition

May 24, 2013—The House of Representatives May 23 approved (221-198) the Smarter Solutions for Students Act (H.R. 1911) to establish a market-based interest rate on federal Stafford loans. The proposed formula is based on the 10-year Treasury Note with a 2.5 percent add-on for subsidized and unsubsidized Stafford loans and a 4.5 percent add-on for PLUS loans, including gradPLUS. Interest rates would be variable with an 8.5 percent cap for Stafford loans and 10.5 percent cap for PLUS loans. Interest on Perkins loans would remain fixed at 5 percent.

The White House issued a May 22 Statement of Administrative Policy threatening to veto the measure.  The statement echoes opposition Democrats voiced during the May 16 House Committee on Education and the Workforce mark up [see Washington Highlights, May 17]. It also outlines differences between the President’s budget request and H.R. 1911. Specifically, the President’s proposal would fix interest rates for the life of the loan and expand the Pay As You Earn repayment program [see Washington Highlights, April 12]. Under both proposals, interest rates on Stafford loans available to medical students are expected to decrease initially, but eventually climb to greater than current rates.

With several additional proposals on the table [see Washington Highlights, May 10], it is unclear how the Senate will address this issue and avoid the looming July 1 doubling of subsidized Stafford loan interest rates for undergraduate students from 3.4 percent to 6.8 percent. Loans for graduate and professional students, including medical students, are unsubsidized (i.e., they accrue interest during school) and already carry a fixed 6.8 percent interest rate.

Senator Jack Reed (D-R.I.) and Senate Health Education Labor and Pensions (HELP) Committee Chair Tom Harkin (D-Iowa) May 14 introduced the Student Loan Affordability Act (S. 953) that would extend for an additional two years the 3.4 percent subsidized Stafford interest rate.  The extension would be paid for through closure of non-education tax “loopholes.”  The measure is supported by Senate Majority Leader Harry Reid (D-Nev.) and has been filed as an amendment to the pending farm bill.

Education Secretary Arne Duncan issued a May 22 statement suggesting an extension of current rates until Congress can develop a compromise market-based approach, stating, "There is no excuse if Congress fails to come to an agreement that prevents rates from rising suddenly in July, and we look forward to working with members of both parties to reach a solution."


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


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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