Senate Bill to Extend Current Student Loan Interest Rates Defeated
Tuesday, Republicans in the U.S. Senate blocked a bill backed by Democrats that would have kept interest rates for certain federal student loans from doubling this July.
By a 52-45 majority, GOP senators effectively killed the proposal – entitled the Stop the Student Loan Interest Rate Hike Act of 2012, it marking this Congress’ 21st successful filibuster of a Democratic-sponsored bill, according to The New York Times. If an extension of current federally-subsidized student loan rates does not occur, loan rates for undergraduate students are expected to jump from 3.4 percent to 6.8 later this summer.
According to recent reports, American students took out almost twice the value of student loans in 2011 – estimated at about $112 billion – than they did a decade ago. In 2010, student loan debt totaled approximately $1 trillion, eclipsing credit card debt as the nation’s second largest form of debt behind mortgages, USA Today reported.
The bill, sponsored by Senate Majority Leader Harry Reid and given White House backing, would have paid for the interest rate extension via higher payroll taxes and the elimination of certain tax benefits for some private companies. Republicans are currently pushing for an alternative extension bill proposed by Sen. Lamar Alexander of Tennessee, which would pay for the interest extension by making cuts to the preventative health care fund – a bill that President Obama has said he would veto if it passed in the Senate, The Washington Post reports.
The new service allows users to access financial aid information as it pertains to more than 7,500 colleges and universities across the United States. Using data collected by official government statistical agencies, the Financial Aid Comparison Shopper evaluates a wide range of financial information, from estimated student loan payment totals to college-specific data such as graduation and retention rates, as well as federal student loan default percentages. Additionally, the new service includes a “Military Benefit Calculator” that allows service members and veterans to estimate military tuition assistance and GI Bill aid.
Last fall, the CFPB launched the “Know Before You Owe” student loan project, unveiling a Financial Aid Shopping Sheet draft that served as a precursor to the Financial Aid Comparison Shopper service. Earlier this year, the organization also launched a service for students with complaints pertaining to private school loans.
According to the CFPB, outstanding student loan debt has eclipsed credit card debt totals in the United States, becoming the second leading source of household debt in the country outside of mortgages.
“Student loan debt has crossed the $1 trillion mark and tuition continues to climb,” CFPB Director Richard Cordray said in a recent press release.
“Now more than ever, students and their families need to know before they owe,” Cordray continued. “Our Financial Aid Comparison Shopper helps students make apples to apples comparisons of their offers and pick the one that works best for their financial future.”
Student advocates worry that a pending interest rate increase on federally-administered student loans will further burden borrowers, potentially adding thousands of dollars to the cost of financing a college degree. Student loan interest rates are set to increase from the current rate of 3.4 percent to 6.8 percent for loans made after June 30.
Students rallied at the nation’s Capitol last week to protest the increase in subsidized loans, generally made to low- and medium- income undergraduate students through the federal Stafford program, the Associated Press reported.
To add to concerns, a recent study released by the Federal Reserve Bank of New York showed 27 percent of the 37 million student loan borrowers in the United States had past-due balances of 30 days or more. Of borrowers under the age of 30, roughly 40 percent had outstanding loans, with an average debt of slightly more than $23,000.
Mark Kantrowitz, publisher of FInaid.org, told New York Times in an e-mail that the rate increase was actually “the lesser of two evils,” citing cuts to the federal Pell Grant program. The government actually looses money offering interest rates of 3.4 percent, he said.
Even if the interest rate is increased, it’s unclear whether or not additional funding would be made available for the Pell Grant program.
Students Hopeful New College Loan Program Will Take the Pressure Off
Beginning in January, students who borrow to pay for college will keep more of their paycheck when it comes time to pay the loans back. Last Wednesday, President Barack Obama announced a plan that would cap monthly payments on federal student loans to 10 percent of the borrower’s discretionary income.
The change comes after a petition on the White House website asking for student loan forgiveness received 32,000 signatures. Although the focus of the plan is not on debt relief, the new proposal would forgive student loan debt after 20 years of payments.
The program is a modification of an earlier proposal approved by Congress that would have taken effect in 2014 and capped monthly payments at 15 percent of a student’s income. That proposal would have forgiven debt after 25 years. Obama accelerated the effective date of the program through executive order.
With unemployment rates still high across the country, students welcome the news.
“I’m definitely worried about paying back my loans,” said Zach Logan, 19, a freshman at Kennesaw State University in Georgia. Logan said he borrowed $500 to help pay for his first semester of college and plans to borrow similar amounts in the future.
“I like the plan,” Logan said. “It sounds like it takes the pressure and stress off students.”
Senior English major Megan Roberts, also of KSU, has so far avoided taking out student loans thanks to the HOPE Scholarship program in Georgia, which pays tuition at state schools for Georgia students with at least a 3.0 GPA. But Roberts’ scholarship will run out before she graduates, she said. Now she is contemplating taking out loans for her last semester and for graduate school.
“It’s a major concern,” she said. Taking out loans is “a reality” for a lot of students but “it’s a little scary.”
According to Rich Williams, Higher Education Advocate for the U.S. Public Interest Research Group (U.S. PIRG) and the Student PIRG’s Higher Education Project, two-thirds of students graduate with college loan debt.
“We are delighted the president is using his executive authority to provide relief to students,” he said. “It’s a small step in the right direction but a larger change is needed to come from Congress.”
Williams said the different types of loans available confuse many students. The new program will help students to track loans and allows borrowers to consolidate loans for lower monthly payments and discounted interest rates. The program is “a little public education and a little debt relief,” he said.
“The president is creating a special opportunity for students,” he said.
Not everyone is happy with the plan, however, including Republican presidential hopefuls.
“I believe it is abuse of power from the executive to impose via an executive order a wholesale change in the student loan,” Michelle Bachmann, a Minnesota Congresswoman and Republican presidential candidate, said at The Future of American Education: A Presidential Primary Candidate Forum sponsored by the College Board and News Corp.
Newt Gingrich, also running for the GOP presidential nomination, called the program a “Ponzi scheme.”
According to Gingrich, speaking at the same education forum, the president will bankrupt “the entire country by promising to every young person you will not have to pay your student loan as a student. However you will later have to pay off the national debt as a taxpayer.”