House Passes Bill Tying Student-Loan Interest Rates to the Market

May 23, 2013

Defying a threatened presidential veto, Republicans in the House of Representatives passed a bill on Thursday that would tie student-loan interest rates to the free market.

If enacted, the bill, HR 1911, would prevent interest rates on subsidized Stafford loans from doubling on July 1, and put an end to the temporary fix that has kept rates low over the past year.

But the bill faces long odds in the U.S. Senate, where Democratic leaders are calling for another extension of the current rate, to give lawmakers more time to craft a new formula. Under current law, student-loan interest rates are set by Congress and are often out of sync with the broader market.

The mostly party-line vote, 221 to 198, occurred a day after President Obama vowed to veto the measure, saying it would "create uncertainty and lessen transparency" for borrowers because rates would reset annually. Under the president's plan, interest rates would fluctuate with the market but would be fixed for the life of each loan.

Mr. Obama also objected to the House plan because it would not expand the income-based repayment option, as his plan would, and because it would use any savings to reduce the federal deficit.

With time running short, and Congress facing a crowded legislative calendar, it's unclear if lawmakers will be able to reach agreement on a long-term solution by the July 1 deadline. If they cannot, interest rates on new subsidized Stafford loans will increase to 6.8 percent.