by Colleen Flaherty
Thanks to the efforts of the Senate, taking out federal student loans will now be less expensive for the coming fall semester. However, it could cost even more for future students.
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Yesterday, the Senate passed a bipartisan student loan deal that will link student loan interest rates to financial markets. This will provide lower interest rates immediately, but the rates will climb as the economy improves. The measure was similar to one that already had passed the House.
Instead of the 6.8 percent rate that kicked in when the rate doubled in July, undergraduates this fall will borrow at 3.9 percent. The rate will be locked in for that year’s loan, but each year’s loan could be more expensive than the last. If the economy picks up as expected, the rates will rise and exceed the doubled rate.
The bill had bipartisan support passing in the Senate 81-18. However, there was opposition, including Sen. Elizabeth Warren of Massachusetts.
“That’s the same thing credit card companies said when they sold zero-interest rate credit cards,” said Sen. Warren. “All students will end up paying far higher interest rates on their loans than they do now.”
Warren referred to the proposal as a “bait-and-switch measure” that will lure in new borrowers with the low rates but will cost future students.
“It’s shocking to me that the United States Senate would offer its own teaser rate for our student loan system – a system that is scheduled to make more than $184 billion in profits over the next ten years. That’s not the business the United States government should be in,” said Warren, who earlier this year proposed a bill that would allow students to borrow from the government at the same rate as the big banks.
Within a few years, rates for all loans will be higher than if Congress does nothing, and some could climb as high as 10.5 percent. Even worse, with the federal government already making billions in profits off these programs, the ‘compromise’ plan is set up to actually increase those profits by hundreds of millions of dollars more. I can’t support a proposal that squeezes even more profits out of our kids, while millionaires and billionaires still don’t pay their fair share. This is a bad deal.
Warren and Sen. Jack Reed (D-RI) proposed an amendment to allow the rate to rise, but would set a lower cap. The amendment was narrowly defeated 46-53. Ultimately, Warren and several colleagues agree that Congress should not balance the budget on the backs of students.
However, the bill – which will most likely pass in the House and be signed into law by the President – is not all bad news for students. Caps were included in the final bill, meaning the rate for an undergraduate loan won’t exceed 8.2 percent. There was also a provision that ensured that the rate is fixed for the life of the loan, rather than varying each year as it would have in the original House bill.
In the end, Sen. Tom Harkin – who was the original sponsor of the Student Loan Affordability Act that would have kept the rates at 3.4 percent – said this was the best solution for students to avoid paying the doubled rate.
“Don’t let anyone tell you that this is a bad deal for students. This is not a bad deal for students. If we don’t pass this, students will pay 6.8 percent on their loans. With this bill, they’ll pay 3.86 percent. You tell me which is the better deal,” said Harkin. “It’s the best that we can do.”
Harkin also made a strong case that when the Higher Education Act comes up for renewal in the fall, the Senate will continue to look at ways to improve college affordability, and that may include revisiting the issue of student loan rates.
If you’re concerned about the student loan interest rate, contact your congressperson today!