A pair of Republican senators have introduced a bill aimed at providing a long-term fix for the expected hike in student loan interest rates.
Interest rates on federally subsidized Stafford student loans are scheduled to double in July from 3.4 to 6.8 percent. Congressional Republicans and Democrats have not yet agreed on a measure that would prevent the interest rates from doubling, with both parties offering alternative ways to pay for the cost of extending the subsidies (see Democrats, Republicans Remain at Odds on Student Loan Rate Freeze).
Senators Tom Coburn, R-Okla., and Richard Burr, R-N.C., on Wednesday introduced the Comprehensive Student Loan Protection Act, a bill that would change the structure for all new federal student loans first disbursed after July 1, 2012, to become a fixed-variable rate. The bill would requires the applicable rate of interest for student loans to be equal to the bond equivalent rate of 10-year Treasury bills auctioned at final auction prior to June 1st plus 3 percent. Lastly, it would direct any remaining savings left over to be sent to the Treasury for the purpose of debt reduction.
“Aside from benefiting student borrowers and putting money back into the pockets of taxpayers over time, moving to a market rate it is just the right thing to do,” Coburn said in a statement. “Instead of spending our time debating which temporary fix will cause the least amount of pain in the short-term, my hope is that my colleagues will support a bill that provides a long term solution that will not require needless annual patching. This bill gives the system, students and the government certainty.”
The Congressional Budget Office included a similar proposal among its recent budget options, and estimated it could provide potential savings of $52 billion over 10 years. The Comprehensive Student Loan Protection Act would apply to all loans and would lower costs for most borrowers—including those who qualify for the maximum Subsidized Stafford at 3.4 percent.
“Stop-gap measures have been the norm on a multitude of issues in Washington lately, but one thing that is consistent among them is that short-term fixes are rarely the answer to the problem,” Burr said. “Not only will this bill bring loan payments down for students, but by indexing student loan rates to a market rate, we provide a long-term solution to this issue.”