The Obama administration has found itself at odds with a key voting
block--college students and their advocates--as well as many of its Democratic
allies in Congress, because of an important, if technical, budget proposal that
could have significant implications for college access.
In a move intended to stave off a doubling of interest rates on federally backed Stafford Loans over the summer, the administration is seeking to shift those interest rates from the current predictable, fixed-rate system to a market-based rate at the time of the loan. Right now, interest rates on subsidized Stafford Loans are set at 3.4 percent, but they're slated to jump to 6.8 percent in July, unless Congress and the administration act.
The shift to a 6.8 percent fixed rate could cost a student with $20,000 in debt--roughly the national average--an additional $12,000 over the life of their loan, according to an analysis by the Institute for College Access and Success, a nonprofit organization in Oakland, Calif.
The administration and some Democrats in Congress have very different ideas about how to head off that potential rate increase. Advocates for students agree that under current interest rates, which are at historic lows--for instance, the rate was 1.73 on April 17--President Barack Obama's fiscal 2014 budget proposal offers a better deal for borrowers than they're getting right now.
But the proposal doesn't place any cap on the interest rate, leaving students open to much more expensive loans if interest rates soar in the future, critics argue.
Just hours after the Obama administration released its budget blueprint April 10, a coalition of student-advocacy groups including the National Campus Leadership Council, U.S. PIRG, Our Time, Rock the Vote, and the Young Invincibles put out a joint statement disparaging the loan plan.
"Students have never taken out federal student loans without a cap on how high interest can go," they wrote. "The president stood with us by investing in higher education during his first term, and we're concerned that his budget does not deliver the same investment this time around."
Key members of Congress are on their side. U.S. Sen. Tom Harkin, D-Iowa, the chairman of the Senate Health, Education, Labor, and Pensions Committee, said during an April 16 hearing on college costs that he has "serious concerns" about the proposal.
"Shifting all federal student loans from a fixed rate to an unrestricted market-based rate will increase the vulnerability of middle-class students and families struggling to afford a higher education," Sen. Harkin said.
However, congressional Republicans--including the top GOP lawmakers in Congress on education issues, Sen. Lamar Alexander of Tennessee and Rep. John Kline of Minnesota--are on roughly the same page as the administration. They like the idea of moving to a market-based interest rate. In fact, Sen. Alexander said at an April 17 hearing that he would like to get started on legislation sooner rather than later.
"Today's students shouldn't be paying more than they should, and then, in the future taxpayers wouldn't be subsidizing more than they should," Sen. Alexander said.
Implications for Access?
Under the president's proposal, student-loan interest rates would be tied to the
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