Newspaper article The Christian Science Monitor

House Passes Market-Based Student Loan Bill: Is It a Step toward a Solution?

Newspaper article The Christian Science Monitor

House Passes Market-Based Student Loan Bill: Is It a Step toward a Solution?

Article excerpt

Congress took the first step toward making sure student loans aren't another victim of Capitol Hill's 11th-hour brinkmanship on Thursday as the House passed a proposed fix for federally subsidized college loans whose interest rates are set to double come July 1.

The bill, which would peg interest rates for student loans to the 10-year Treasury bond rate, passed 221-198, with four Democrats joining all but eight House Republicans in supporting the measure.

Despite the starkly partisan vote and a White House promise to veto the bill, the House Education and Workforce Committee chairman, Rep. John Kline (R) of Minnesota, argued that the vote helped move Congress toward resolving the issue rather than coming to a stand- off later this summer.

"President Obama asked for a long-term, market-based solution and that is precisely what we have delivered. It is now up to the Senate to move forward with its own ideas to solve the problem, so we can come together and send a bill to the president," Representative Klein said in a statement, referencing Mr. Obama's own student loan plan that resembles the House GOP proposal in some ways.

Senate Majority Leader Harry Reid (D) of Nevada has said his chamber will handle similar legislation in the near future, although its prospects for landing on the Senate floor are clouded somewhat by the need to pass a farm bill and immigration legislation in June.

Kline's legislation would add 2.5 percent to the government's rate of borrowing over 10 years for undergraduate loans and 4.5 percent to the same rate for loans taken out by parents or used to fund graduate education. Undergraduate loans would be capped at 8.5 percent, while other loans would go no higher than 10.5 percent.

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Today, that would give students a rate slightly below the 3.4 percent the government currently offers but would likely rise well above that level as the economy expands.

While the rate will vary from year to year, students will be able to consolidate their loans into a single package upon graduation in order to lock in a single rate. Taken together, the changes would save the government some $3.7 billion over the next decade.

Democrats, however, say the changes would add thousands to student loan bills once interest rates begin to rise along with the economy. Moreover, when Democrats look at a variable rate like the GOP proposal, they see the potential for a future crisis if interest rates were to skyrocket.

While rates are "freakishly low" today, says Rep. Joe Courtney (D) of Connecticut, "if we look at the housing catastrophe that occurred in the early 2000s, it was built around this false belief that variable rates would never go up, and once they hit that tipping point going up, the whole house of cards collapsed."

While Obama's plan would also peg the student loan rate to the 10- year Treasury, he would offer a fixed rate for the life of the loan and a narrower spread (ranging between a 1 percent and 4 percent boost to the rate) and would not cap the interest rate. …

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