Student loan rates will double to 6.8 percent on July 1 if Congress doesn’t settle on a new plan soon, but disagreements flared Thursday, not only between the two parties, but between a veteran Democrat and President Barack Obama.
Sen. Tom Harkin, D-Iowa, chastised his own party’s leader over the details of the president’s solution to the problem. Obama in his budget plan earlier this year proposed a market-based student loan rate, similar to a Republican proposal, but at a lower rate and with a different protection for future increases.
Harkin, chairman of the Senate Committee on Health, Education, Labor and Pensions, has proposed an alternative that would freeze the borrowing rate at 3.4 percent for two years while Congress worked out a long-term plan.
“I’ve got to tell you, I’m very upset with President Obama and the Republicans,” Harkin told reporters Thursday. “This is the first president since 1958, since this came into being, that has advocated changing the basis from 91-day T-Bill (Treasury bill) rate to a 10-year Treasury bond. It’s a lot in terms the interest kids are going to have to pay.”
He also said the president’s plan would hurt low-income students.
“I’m telling you,” the five-term Democrat said, “the African-American community better look at this, and what this is going to mean to low-income students all over America, who are disproportionately black, and what it means in terms of how much they’re going to have to pay for these government loans.”
Harkin also said Obama was the first president who would lift the cap on student loan rates. Instead, Obama would offer income-based repayment plans for all borrowers so that monthly payments would be manageable.
Obama’s plan bases the student loan interest rate on the 10-year Treasury rate and adds 0.93 percent. House Republicans tie it to the same rate but add 2.5 percent. Obama also called for locked-in rates for the life of the loan, rather than a readjustment every year as House Republicans have proposed. A Senate Republican plan would lock in the rate.
House of Representatives Republicans say rates should be capped at 8.5 percent.
House Speaker John Boehner, R-Ohio, also weighed in on the issue Thursday, claiming that Obama and the Democrats “have decided to deliberately allow rates to rise.” He said the GOP plan was similar to the president’s, “but the Democrat-controlled Senate has refused to pass it.”
The president criticized the Republican plans last month, saying that because they didn’t lock rates in, students starting school next year would end up paying more over their college years than if Congress did nothing and rates simply doubled. Currently, Congress sets the rate every year.
Students increasingly are taking out loans to cover college costs as tuition and fees go up. If rates double, as they will next month should no action occur, students would pay an additional $1,000 over the life of the loan.
Harkin said that the Republican proposals in the Senate and House would result in even higher costs.
Republicans accuse Democrats of playing politics. Democrats say the Republican plan is too expensive and that the president supports their proposal.
The debate came up on the Senate floor Thursday, as well.
Sen. Elizabeth Warren, D-Mass., asked for a unanimous consent on the Democrats’ two-year extension of the 3.4 percent rate, paid for by closing some tax loopholes. Under Senate rules, if one member objects to such a motion it can’t be done, and Sen. Richard Burr, R-N.C., objected.
Burr asked for unanimous consent to pass a bill to pass Obama's proposal. Warren objected, so there was no vote on the Republican proposal, either.
Burr is a sponsor, along with Republican Sens. Lamar Alexander of Tennessee, Tom Coburn of Oklahoma and Johnny Isakson of Georgia, of a bill that would set interest rates for all student loans at the 10-year Treasury note rate, plus 3 percentage points. All loans next year would be 4.75 percent, based on the current 1.75 Treasury rate.
The rate would change for each academic year. Rates are expected to rise in the future, so borrowers would face higher costs.
Warren said there is a majority behind the Democrats’ plan but that Republicans were blocking a vote by insisting on a filibuster, a move that blocks action unless 60 senators vote in favor. Democrats would need Republican votes to get to 60, and they don’t appear to have them on this issue.
CORRECTION: This corrects an earlier version to show that the Senate student loan proposal would lock in interest rates for the life of a loan. It also corrects to say that Sen. Burr called for a vote on the loan proposal that President Obama made in his budget plan for 2014.