If interest rates on federally subsidized student loans double on Monday, as expected, the biggest loser may not be students. It could be Senate Democrats.
Sure, student borrowers will suffer if Congress lets the rates go up on new loans to undergraduates, but not as much as the alarmist rhetoric (and some inaccurate news reports) would suggest. And there is still time for Congress to fix the rate retroactively, before most students sign their loan documents.
Senate Democrats, meanwhile, find themselves on the defensive, forced to explain their inaction on an issue that just last year helped the party win the student vote. With the Fourth of July recess set to begin on Monday, Democrats are heading home to constituents who are angry over the increase, and who may blame their senators for the impasse.
Republicans in the House of Representatives recognize this, and have been using every opportunity to point out that they have passed a bill on student-loan interest rates that is similar to President Obama’s proposal. They’ve devoted their last three weekly radio addresses to student loans, and have issued a flurry of news releases accusing Democrats of blocking the president’s plan.
Last week the speaker of the House wrote to Mr. Obama, urging him to show leadership on the issue. “It is astonishing that your fellow Democrats have been so openly hostile to your proposal,” Rep. John A. Boehner, an Ohio Republican, wrote. “Frankly, there is no evidence that Democrats are making a sincere effort to get a bill passed.”
Democrats counter that no fix would be better than the Republican plans, which would allow rates to rise above 6.8 percent—the mark they will hit, barring a last-minute breakthrough, on Monday. Along with student groups, they’re pushing for a short-term extension of the current rate, arguing that Congress needs time to take a comprehensive look at the federal loan programs.
“Republicans see the deadline as a chance to cram through a long-term bill that would keep rates low for a year or so, but then in successive years make college more expensive for working families,” said Sen. Jack Reed, Democrat of Rhode Island. They say the House plan, which would reset interest rates each year, bears little resemblance to Mr. Obama’s plan, which would fix rates for the life of each loan.
Sen. Elizabeth A. Warren, Democrat of Massachusetts, has turned the fight into a populist crusade, offering a bill that would let students borrow at the same rate as banks for a year. Her supporters have flooded Congressional offices with more than 2,000 letters detailing their struggles with student debt. And on Thursday, members of MoveOn.org held a “day of action” that took aim at House Republicans, with protests outside Congressional offices, on college campuses, and in front of banks.
Lost in the political posturing is the fact that the interest-rate increase would have a modest effect on student debt, costing the average undergraduate borrower $2,600 more in interest over a 10-year repayment term, according to some estimates. That’s not pocket change, but it’s a far cry from the $1,000-a-year cost estimate that some major news outlets have attributed to President Obama.
For the typical bachelor’s-degree recipient, the increase will mean an additional $24 a month, according to an analysis by Mark Kantrowitz, senior vice president and publisher of Edvisors Network.
Last-Minute Deal Unlikely
For a little while, it looked as if a compromise might be possible. Last week a bipartisan group of senators began shopping around a proposal that borrowed from the president’s plan and the House-passed bill. Supporters hailed the emerging measure as a breakthrough in the interest-rate stalemate.
But before the much-anticipated deal was even introduced, on Thursday, it appeared to be falling apart, with the Senate majority leader, Harry Reid of Nevada, saying it could never pass, and a spokeswoman for the Democratic chairman of the education committee, Sen. Tom Harkin, Democrat of Iowa, calling it a “nonstarter.”
The chief sticking point was the bill’s lack of an interest-rate cap. House Republicans included one in their bill, and Democrats and student groups argue that it’s a key borrower protection.
But Senate Republicans argue that income-based repayment provides an effective cap, since it limits loan payments to a percentage of a borrower’s income, and forgives any debt that remains after 20 to 25 years. They point out that borrowers would continue to have the option of consolidating their loans at a fixed rate not to exceed 8.25 percent.
The other major disagreement is over what to do with any savings produced by a switch to market-based interest rates. Republicans want to use the money to help reduce the federal deficit; most Democrats favor using it for additional student aid.
It’s still possible that Congress could come to an 11th-hour consensus on student loans. But with the president on a weeklong visit to Africa, and many lawmakers leaving town for their home states and districts, the chances for a deal are “slim to none,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.
He pointed out that while Congress has a history of staving off crises at the last minute, its recent track record hasn’t been that great: Just look at sequestration, the across-the-board budget cuts that took effect in March, despite Congress’s efforts to avert them.
With only a few days remaining before the interest-rate increase is scheduled to take effect, Mr. Draeger is advising his group’s members to tell student borrowers that their rates are doubling to 6.8 percent.
