Taking Politics Out of Student Loans
We live in the greatest country in the world – a country where we’re free to choose our own career path. Everyone, no matter what their background, is afforded the opportunity to pursue higher education. We have a responsibility to ensure that college is not only accessible, but affordable for all students – including those that must take out student loans to finance their education.
In 2010, the cumulative lifetime default rate of student loans, which is calculated based on student loans and includes defaults occurring from the time loans entered repayment through September 30, 2011, was 6.7 percent at four-year public institutions for the 2009-2010 school year. These statistics beg the question: what is keeping students from paying back their loans? In my judgment, we must simplify the student aid and loan programs so students know what they’re getting, what they’re expected to pay and how this will affect their financial futures. If the government would just get out of the way and let the market work, students could have the certainty of lower student loan rates, more choices in lending and a better path to pay off their loans upon graduation.
According to the National Center for Education Statistics, the cost of undergraduate tuition, room and board at public institutions rose 42 percent from the 2000-2001 school year to the 2010-2011 school year. The prices at private not-for-profit schools rose 31 percent. With tuition on the rise, it is imperative students can take advantage of lower interest rates.
In 2007, the then-Democrat-led Congress passed legislation to temporarily lower student loan interest rates in a stepwise fashion to a low of 3.4% in 2011-12, knowing the rate would double to 6.8% on July 1, 2012. Congressional action last year kept the interest rate at 3.4% for another year while a more permanent solution could be developed. Under the leadership of Education and Workforce Committee Chairman John Kline (R-MN) and the Higher Education Subcommittee Chairwoman Dr. Virginia Foxx (R-NC), Republicans have put forward a bipartisan plan, H.R. 1911 the Smarter Solutions for Students Act, that will bring more certainty to student loan interest rates. This plan would establish a market-based interest rate that is tied to the 10-year Treasury note to take advantage of today’s historically-low interest rates.
Under this plan, Stafford loans will be set at the 10-year Treasury rate plus 2.5 percent – with an 8.5 percent cap. PLUS loans will be set at the 10-year Treasury rate plus 4.5 percent – with a 10.5 percent cap. These rates would reset once a year and would reflect the actual cost of borrowing, instead of an arbitrary rate set by politicians. This commonsense plan will also be helpful to students because, according to the Education and Workforce Committee, instead of paying 6.8% for loans originated after July 1, students can take out Stafford loans at an estimated 4.4%, which reflects the current low rates. Again, at no time will Stafford rates exceed 8.5%.
I was pleased to support H.R. 1911 when it passed the House last Thursday. We must stop playing politics with student loans and get Washington out of the equation. I was very disappointed that the president’s advisors threatened a veto on this legislation, as it is similar to what President Obama proposed in his own budget earlier this year. American students are fortunate to have many choices for how they continue their education and, with the right information, they can make smart decisions for their futures based on what they can afford, what institution best fits their needs and serves their goals and how they will pay back their student loans. And I believe they can make these choices better without politicians using student loan interest rates as a talking point and blocking commonsense, market-based legislation to give these students the certainty they deserve.
Please feel free to contact my office if we can be of assistance to you or your family. Our contact information can be found on our website, www.roe.house.gov.
