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.
Cap Off
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
