Student loans reclaim center stage

[ProSense]

Student loans reclaim center stage

By Steve Benen

In about an hour, President Obama will deliver remarks, flanked by college students, on a subject that too often goes overlooked: student loans. With a looming interest rate hike, the president will reportedly "call on Congress to help keep college affordable for middle-class families and students by preventing student loan interest rates from doubling on July 1."

Indeed, with just a month to go before the rate hike, Sahil Kapur reports that this issue is poised to reclaim center stage, just as it did at this point last summer.

A battle is heating up between President Obama and Republicans on how to prevent student loan interest rates from doubling to 6.8 percent in July -- a flashpoint in the ongoing efforts of both parties to win young voters, who strongly favor Democrats. <...>

Speaker John Boehner's (R-OH) office lashed out at the White House Wednesday after the event was announced. Labeling it "stunning student loan cynicism," Boehner spokesman Brendan Buck noted that unlike the Democratic-led Senate, the Republican-led House has already passed legislation to prevent student loan interest rates from spiking on July 1.

"It's obvious that the White House would love nothing more than to change the subject from its growing list of scandals, but scheduling this PR stunt reeks of desperation," Buck wrote on the Speaker's blog, noting the similarities in the two loan proposals. "Picking a fight out of thin air where there's policy agreement isn't going to get the White House out of trouble, and it certainly doesn't do anything to help students facing a looming rate hike."

First, there is no list of White House scandals -- the total is still zero. Second, the deadline matters to millions of families, so there's no point in dismissing it as some kind of partisan distraction. And third, there isn't policy agreement on student loan interest rates, as even the Speaker's office should understand.

Let's back up and provide some context here. As we discussed several weeks ago, Congress passed a law in 2007 that kept the interest rate for federal Direct Stafford Loans at 3.4%. Last year, that law was set to expire, and without congressional action, the rate would have doubled, affecting more than 7.4 million students, who would have faced, on average, an additional $1,000 in debt.

- more -

http://maddowblog.msnbc.com/_news/2013/05/31/18655088-student-loans-reclaim-center-stage

The president’s budget proposes that interest rates for new student loans, which are currently set by Congress, instead be tied to the government’s cost of borrowing. Once set, the rates would remain the same for the term of the loan, which is typically 10 years.

Consumer and student advocacy groups have generally supported the idea of a market-based rate, but only if there is a cap. The president’s proposal does not provide any limit on how high the rate can rise.

“While in the short term the President’s budget includes critical savings for millions of students and their families who will rely on federal student loans to pay for college, we are concerned by the long-term implications,” said Anne Johnson, director of Campus Progress, part of the Center for American Progress. “Without a cap, a market-based rate means that future generations of students could face higher levels of education debt as a result of higher interest rates.”

The proposal contains a provision that would expand repayment options so that student borrowers’ monthly payments would not exceed 10 percent of their discretionary income. Under the president’s budget, interest rates would be pegged to 10-year Treasury notes, plus an extra 0.93 percent for subsidized Stafford loans, an extra 2.93 percent for unsubsidized Stafford loans, and an extra 3.93 percent for loans to parents and graduate students.

The current rate for subsidized Stafford loans, which go mainly to low- and middle-income students, is 3.4 percent; that rate is due to double this summer.

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http://thecaucus.blogs.nytimes.com/2013/04/10/latest-updates-on-obamas-budget-proposal/#higher-ed-changes-to-student-loan-interest-rates

Under Obama’s proposal, the interest rate on student loans will be set each year based on the government’s borrowing costs. For subsidized loans, the rate would be 0.93 percentage points above the rate on a 10-year Treasury bond; unsubsidized loans would be two percentage points higher than that, and grad student loans one more percentage point higher still. So at the current 10-year T-note rate of a little over 1.8 percent, subsidized loans would be about 2.75 percent, unsubsidized loans would be 4.75 percent, and grad student loans would be about 5.75 percent—all lower than the current fixed rates.

http://www.businessweek.com/articles/2013-04-15/how-obama-wants-to-change-student-loan-interest-rates

Senator Warren introduced a plan to address the issue for one year, giving Congress time to come up with a solution.

Elizabeth Warren: Students should get the same loan rate as big banks
http://www.democraticunderground.com/10022815060

Remember the proposal only addresses the rate of subsidized loans, which is set to double.

The interest rate on federal subsidized Stafford loans is set to increase from 3.4 to 6.8 percent on July 1. If Congress does not act soon, millions of college students will see their student loan payments increase needlessly.

http://www.warren.senate.gov/documents/BankonStudentsFactSheet.pdf

Clearly, Warren's proposal offers a much lower rate than the President's (.75 percent versus 2.75 percent) for subsidized loans, and it would be great if the change could be made permanent. Still it does nothing for unsubsidized loans.

The President's plan is a permanent fix across subsidized and unsubsidized loans. It effectively lowers the rates on all loans in the short term, but the concern is that there isn't a cap.

[patrice]

1. Banks get the cheap money because it's for real estate, so THEY can end up with real ASSETS. Young

people, on the other hand, apparently are not an asset, not worth the risks, so they have to pay out the nose for trying to participate in the very system that devalues them.

Sad, sad, sad . . .