Student Loan Interest Rates
The agreement reached on a student loan interest rate package last week has been disrupted after a Congressional Budget Office (CBO) score estimated a $22 billion (over 10 years) cost to the proposal. A bipartisan group consisting of Democratic Senators Joe Manchin (WV), Tom Carper (DE), and Dick Durbin (IL), as well as Senators Angus King (I-ME) and Lamar Alexander (R-TN), had agreed on a proposal that would:
Peg the student loan interest rates to the 10-year Treasury note, plus 1.8 percent for both the subsidized and unsubsidized Stafford loans. For graduate loans, the proposal would add 3.4 percent, while add 4.5 percent for PLUS loans.
Fix rates for the life of the loan and cap the undergraduate rate at 8.25 percent and 9.25 percent for graduate and PLUS loans.
Continue to allow borrowers to consolidate their loans and cap repayment interest rates at 8.25 percent, as well as allow for an income-contingent repayment plan with a repay cap of 10 to 15 percent of their annual income.
- Initially, the primary reason explained for the $22 billion cost was the inclusion of a front-end cap, which was insisted on by Democrats who have taken the stance that a front-end cap is necessary. However, the CBO scored an unreleased White House student loan interest rate plan as budget neutral, although the plan does include a front-end cap. The $22 billion cost is now being attributed to the restructuring of the undergraduate loan. To give viability back to the proposal, Democrats are looking for an offset, but Republicans may view an offset as a non-starter in these negotiations.
With the release of the CBO score, pressure on the Senate to agree on a retroactive fix continues to mount, as a solution is needed prior to the August recess. Some Democrats continue to push for an extension of the current student loan interest rates; however, there appears to be no appetite for this solution in the Senate, as it voted against a measure to extend current interest rates for one year last Wednesday, July 10. The measure was defeated by a vote of 51-49.
This Week’s Hearings:
- Wednesday, July 17: The Senate Commerce, Science and Transportation Committee will hold a hearing on broadband in schools and libraries.