The Senate plans to vote at some point this week on a plan that would tie interest rates on new federal student loans to the market, rather than having a fixed rate for years on end.
The plan, created by a bipartisan group of senators, has substantial support from top congressional leaders, many Republicans and President Obama, who took a personal interest in the matter. But a few Democrats hate the proposed plan and are attempting to change it, slowing its path to a vote.
In floor speeches, statements and interviews, opponents have criticized Republicans for commandeering the process and pushing a plan that will save students some money in the next few years but will likely cost future students much more.
Many say they want a wholesale revision of the federal student loan program — which could include refinancing existing loans and confronting the overall cost of college — and not just a rate change. These lawmakers have received the backing of a few student groups that say they would rather have no deal than a bad one.
Sen. Elizabeth Warren (D-Mass.) has been one of the most vocal critics, calling the current plan a “teaser rate loan program” and comparing it to credit card companies that entice students with low introductory rates, only to dramatically increase those rates later. Sen. Jack Reed (D-R.I.) said in an interview Monday that the only certainty provided by what has been dubbed the “Bipartisan Student Loan Certainty Act of 2013” is that rates will go up.
Sen. Bernard Sanders (I-Vt.) urged his colleagues on Tuesday to address the larger “crisis” facing students and to stand up for middle- and lower-class students. In a statement issued on Monday, he called the compromise “dangerous.”
“At a time when Democrats control the White House and the U.S. Senate, we should not support bad legislation almost identical to that passed by a very conservative, Republican-led House,” Sanders said in the statement. “Our job is to listen to the people who elected us and stand up for working families and their kids, not make their lives more difficult.”
The compromise calls for setting interest rates using the value of the 10-year Treasury bill, plus a percentage add-on. Undergraduates would have the lowest rates, which could go up to 8.25 percent, higher than the current fixed rate of 6.8 percent. Graduate students would pay a higher rate that could go up to 9.5 percent, more than the current rates of 6.8 and 7.9 percent. And PLUS loans, which are taken out by graduate students and parents of students, would have the highest interest rate, which could go as high as 10.5 percent, higher than the current rate of 7.9 percent.
For the next few academic years, the projected interest rates are lower than the current fixed rates. For the coming year, undergraduates would lock-in an interest rate of 3.86 percent, with graduate students having a rate of 5.41 and PLUS loans at 6.41 percent. By 2018, those rates are expected to be at 7.25 percent for undergraduates, 8.8 percent for graduate students and 9.8 percent for PLUS loans — rates that are all higher than the current rates.
Reed has proposed an amendment that would cap the interest rates at the current level of 6.8 and 7.9 percent. Sanders has proposed another that would implement the new interest rates for just two years, buying senators more time for a more complete reform.
The new deal could also earn the federal government an extra $715 million over the next decade, with most of that profit coming in the later years when rates are expected to increase, according to the Congressional Budget Office. Some Democrats have argued that the government shouldn’t make any money off student loans, while some Republicans have suggested that this is a way to decrease the national deficit.
Sens. Patty Murray (D-Wash.) and Al Franken (D-Minn.) plan to introduce an amendment that would redirect the expected $715 million profit to the federal Pell Grant Program to benefit low-income students.
Sen. Lamar Alexander (R-Tenn.) said last week that $715 million isn’t that much compared to the billions of dollars the government will lend out over the next decade, and he hopes the actual number will be much less.
Senate Majority Leader Harry M. Reid (D-Nev.) has supported the compromise and last week suggested rushing a bill to the floor on the same day that a deal was reached. Procedural votes on the legislation could start Tuesday, with leaders hoping to wrap everything up by the end of the week.
Even some Democrats who plan to vote for the bill are likely doing so grudgingly, as this is not the plan they wanted. During the heated negotiations earlier this month, one aide complained that Democrats involved in the negotiations had made concession after concession, while Republican negotiators were not willing to do the same. The White House added pressure, pushing for a deal so that students can lock-in rates for the coming school year.
Sen. Tom Harkin (D-Iowa), chairman of the Senate’s committee that handles education issues, has requested that the Government Accountability Office conduct a study of the cost of the federal loan program, collecting data that could be used to again change the interest rates.
The divide between key Democrats is clear and played out on the Senate floor on Thursday evening when Warren spoke at length, passionately, about why she could not support the compromise. Although the Democratic negotiators had the best intentions, she said, the government will continue to profit from squeezing the budgets of young people.
“I understand that compromise isn’t always pretty, but there isn’t any compromise in this bill,” said Warren, who has called for a plan that would also address the more than $1 trillion in student loan debt that already exists and find ways to reduce the overall cost of college. Warren pointed out that while some current college students could see lower rates for the next few years, it would be on the backs of younger students.
“I don’t believe in pitting our kids against each other,” she said. “I don’t think high school sophomores should pay more so college sophomores can get a little break. In fact, I think the whole system stinks.”
After Warren finished her remarks, Majority Whip Richard J. Durbin (D-Ill.) took the floor to defend the bipartisan compromise, which he oversaw. He agreed that he would like to see the government’s gains from education loans decrease — but he pointed out that neither party has brought forward such a proposal.
“Here’s the reality,” he said. “We’re talking about this issue with a divided Congress. We’re talking about this issue where the House of Representatives is controlled by the other party and doesn’t see this issue, at all, the same way.”
Durbin said that while he and Warren could quickly agree on large-scale changes, they would need to get enough Republicans on-board to get it passed. The Senate has 54 Democrats and needs 60 votes, he said, and a “global change” is not going to happen. He pointed out that mortgages and other types of loans have interest rates that are currently lower than federal education loans.
“I think that it’s far better for us to try to bring these student interest rates down as quickly as we can and hold out the possibility that we will revisit this again and bring them down even further in the future,” Durbin said. “Maybe things will change politically.”