By John Sandman
NEW YORK (MainStreet) -- The Senate is working on a new script that could re-write the student loan drama, which supposedly came to a climax yesterday when seven million students with subsidized Stafford loans watched their interest rates jump from 3.4% to 6.8%.
A smorgasbord of bills dealing with interest rate hikes have been in an out of committees and on and off the table this year. A new attempt is S. 1238, introduced yesterday by Senators Jack Reed (D-RI) and Kay Hagan (D-NC) that would freeze current rates for one year. A Reed spokesperson said the bill would pay for itself by closing a tax loophole. But with Congress having left town for the July 4th holiday, a vote won't take place in the Senate until at least July 10. The rate freeze could be made retro-active to July 1.
As with the others, the bill addresses the cost of the loans and interest rates are the key metric. The Reed-Hagan Bill was preceded by The Bipartisan Student Loan Certainty Act last week.
Senators Lamar Alexander (R-TN) Angus King (I-Maine) and Joe Manchin, (D-WV) joined forces with Richard Burr (R-NC) and Tom Coburn (R-OK) on this bill, which attempts to combine the interest rate plan from the House Republican bill and the Obama administration's proposal
The Obama plan and the Alexander-Burr-Coburn-King bill both link rates to the 10-year Treasury bill
; the market, not Congress, would set the rates, which would be fixed for whatever the rate was when the loan was made. That lowers the rates for borrowers this fall but lets them rise in the future. The Congressional Budget Office projects that unsubsidized Stafford loans will be over 6.8% in 2016 and 8% by 2018. Under the Obama and the Republican plans, there would be no limit on interest rates for the first time.
Some Democrats, including chairman of the Health Education, Labor and Pensions Committee Senator Tom Harkin of Iowa, have been unwilling to compromise on their proposal to extend existing rates for another two years and revisit the issue in 2015. Again, the underlying issue is a cap on rates.
"Senator Harkin is not interested in proposals that ask low- and middle-income college students and their families to pay even more in interest to reduce the deficit and tie student loans to unrestricted interest rates," said Harkin spokesperson Allison Preiss. "Any proposal that lacks a cap is a nonstarter."
Veteran congressional observers say that doing this deal on July 10, then making it effective on July 1, was doable.
What's more, new student loans probably wouldn't close until September and certainly after July 1, meaning a post-July 1 rate fix could be baked in to a new agreement. The rates on loans made before July 1 won't be affected in any event.
Tennessee Senator Alexander has also said that it would be "pretty easy" to reset student loan interest rates after they go up.
How easy remains to be seen, since a companion bill would have to pass the House. "The House would need to act as well," said Michael Russo, a Washington, D.C.-based spokesperson for U.S. PIRG. And there's the rub, since that's where much of the opposition to the 3.4% rate cap has come from.
George Miller (D-CA) has already introduced such a bill. "Representative Miller is trying to get a vote on a companion bill in the House (H.R. 2574)," said Gretchen Wright, spokesperson for The Institute for College Access and Success (Ticas), based in Oakland.
"Procedurally, you would need one of three paths to occur," Wright continued said. "One would be for both chambers to pass identical bills." A second possibility, she added, would be where "one chamber amends a bill that has already been passed by the other chamber and the amended bill would return to the originating chamber for consideration of any changes."
The third, and possibly most likely scenario, would be where each chamber could pass different bills and then come to an agreement in conference, where each chamber passes the conference bill.
--Written by John Sandman for MainStreet