Senate Faces July 1 Deadline for Student-Loan Reform

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Kevin Lamarque / REUTERS

U.S. President Barack Obama makes remarks on student loans from the White House on May 31, 2013

Over 7 million college students will see their subsidized student-loan rates double on July 1 if Congress can’t reach a compromise to avert the hike. In the meantime, House Republicans — having acted first this time — are using the issue to bludgeon Democrats.

With federal subsidized Stafford-loan rates set to spike from 3.4% to 6.8%, House Republicans passed a bill on May 23 that would tie the rate on the popular loan to the yield on the 10-year Treasury note. The move partly mirrored a plan put forth by President Obama, who also proposed to tie lending rates to market forces. But despite the similarities between the President’s proposal and the House GOP plan, the White House threatened to veto the GOP bill, claiming that it “would impose the largest interest-rate increases on low- and middle-income students.”

Obama’s plan calls for rates to be pegged to the 10-year Treasury note at the beginning of each year. Unlike the House GOP plan, which would allow interest rates to vary after loans are taken out, Obama proposed to guarantee a fixed rate for the life of the loan. The White House argues the House plan would “create uncertainty and lessen transparency” for students considering loans. In addition, it wants to cap borrowers’ obligations at 10% of their discretionary income.

But the White House has a political problem in the Senate, which remains at square one. Senate Democrats rejected a Republican proposal 40-57 on June 6 after their own plan failed to move past a filibuster, 51-46. Their inaction has left the party open to Republican broadsides. “The differences between the House plan and yours are minor,” wrote House Speaker John Boehner in a letter to Obama on June 20. “Republicans have worked … to enact a responsible, bipartisan solution.”

On Thursday, Democratic Senators met with White House chief of staff Denis McDonough, legislative director Miguel Rodriguez and White House official James Kvaal to try to hash out a compromise. According to a source familiar with the meeting, the White House expressed a willingness to make changes to the President’s plan. McDonough suggested the White House would accept legislation that placed a cap on rates if it would lead to an agreement. Such caps are “important for borrowers,” says Caroline Ratcliffe, an economist at the Urban Institute in Washington. “We have fixed rates and rate caps in the mortgage market. We need to have some of those same protections in the student-loan market.”

While Republicans are blasting Obama for opposing a bill that has broad similarities to his, Matt Lehrich, a White House spokesman, told TIME there are crucial differences that make the House measure impossible for the President to accept. “We’re glad House Republicans are paying attention to this looming problem this time around, [but] the plan they passed doesn’t solve it,” Lehrich says. “In fact, a typical freshman could actually pay more under their plan than if Congress did nothing at all.”

Last summer, confronting a similar deadline amid the presidential campaign, both parties decided to punt the issue for a year. This time both want a permanent fix.

There is still hope a deal could emerge before the deadline. One Senate proposal reportedly sets the rates for both subsidized and unsubsidized loans to the 10-year Treasury note, plus 2% — a middle ground between the President’s proposal and that of House Republicans.

“There are a lot of well-intentioned ideas out there, but so far none of them goes far enough to protect students,” says Chip Unruh, press secretary for Democratic Senator Jack Reed of Rhode Island, one of the Senators working to broker a deal. “Keeping the rate at 6.8% may strangely turn out to be a better overall outcome than many of the current proposals.”

It won’t be easy to cut a deal in a week clogged with legislative wrangling over immigration, surveillance programs and the lingering IRS scandal. Congress retains the option to pass legislation after the July 1 deadline that would retroactively maintain or change loan rates. In the meantime, however, Democratic operatives are expressing frustration about the White House decision to threaten a veto on a House bill that, at least in broad strokes, follows Obama’s own prescriptions.

“We will continue to work with Congress on this matter,” White House press secretary Jay Carney said Friday. “We are encouraged by the bipartisan talks taking place in the Senate this week and are confident that an agreement that is good for students is within reach.”

12 comments
AnaMadani
AnaMadani

Q1: Why are student loans exempted from the standard consumer protections that exist for credit card debt, medical bills, etc.?

Q2: Why are student lenders exempt from the Fair Debt Collection Practices Act?

Q3: Why can't student loans be discharged under Chapter 7 bankruptcy just like any other kind of debt mentioned in Q1?

Q4: Why is our government just pretending to care about students when their actions indicate they only care about profits? It's really ironic that politicians have been wailing and gnashing their teeth about predatory lending practices among payday lenders and mortgage brokers when the student loan industry is just as bad, but they couldn't care less about that. They're just pretending to care in order to score political points. Read the fine print, and you'll see their proposals to "help" students really won't help anyone.

Imagine paying regularly on your student loans for 10+ years – at more than double the 3.4% rate everyone’s up in arms about (8.5%). Not only does your balance never go down, it doubles. Now imagine you've been looking for a full-time job for 10+ years, but you're too old, over-qualified, blah, blah, blah. Imagine you got cancer and couldn't work. You think the student lenders care? Nope. They'll just keep piling on interest and fees.

Can you refinance for a lower rate? No.

Can you negotiate for a more affordable payment? No.

Does anyone in the student loan industry really have a nanogram of compassion or humanity? Hell no.

Now is the time to do something that will really help:
http://petitions.moveon.org/sign/allow-people-to-discharge?source=c.url&r_by=7737772

http://www.change.org/petitions/us-government-give-americans-the-ability-to-discharge-student-loans-in-ch-7-bankruptcy#share

curt3rd
curt3rd

I thought Obama fixed this before the election.  Oh... I see, he only expanded it long enough to get through the election

tkulaga
tkulaga

Effective July 1 all colleges and universities that help students get student loans should be forced to co-sign them for any student in his Junior year and above.  They can start by being on the hook for 25% of the note for Juniors, 50% for Seniors, 75% for Masters level and 100% for Doctoral level students.

generationpolitics
generationpolitics

@curt3rd You are an idiot you should read into who you voted for congress before you blame the president. The president isn't king and doesn't have the authority to vote on decisions such as keep our student interest rate low. 

duduong
duduong

@La_Randy @tkulaga 

There are a lot of con shops that are really just selling diplomas to people too stupid to know they are worthless. This is real waste of taxpayer money. Some efforts towards discouraging that will be a good idea.

tkulaga
tkulaga

I see it as a means to force the colleges and universities to have some skin in the game for one. As it is today too many students leave college with worthless degrees and by forcing these entities to possibly be liable for student loans, I think they will pay attention to the student’s curriculum and career path which will limit the problem as I see it. It might even tell students to go no further with their studies



donniemrkacek
donniemrkacek

@tkulaga @generationpolitics I agree, they are contracts and colleges should be responsible for a portion of the graduates and take responsibility far to long students have been looked at as collateral and not citizens.

generationpolitics
generationpolitics

@tkulaga 

And WHAT about the ones who busted their ass through school, didn't have their rich mommies and daddies pay for them. Must be easy coming from a spoiled rich kid. 

FYI America has one of the worst educational systems in the nation and we do nothing to help my generation fill that gap. 

tkulaga
tkulaga

@cent-fan @tkulaga It is not a program as of yet so you are not being asked how it works. And as far as colleges and universities picking and choosing students,...there are only so many smart students to go around.....what will they do when there are no more smart ones to fill their voids?

cent-fan
cent-fan

@tkulaga I'm not sure how that works.  First, the colleges can wash their hands of the entire loan process and only accept loans directly from third party lenders... or only accept rich or otherwise very talented students.  Second, many students taking Eastern European Poetry are in it for the parties and have no real career plans so the only answer would be to shut down all courses not deemed career material.  Third, even if successful, the colleges will become even more market driven to get their money back which means battalions of Chemical Engineers and Dental Office Assistance thereby saturating the market and ruining the job prospects. 

I'm afraid it's up to the student to work with what they have brain or money wise...  but I do see the need to leave a wide door open for poor but academically promising students... any academically promising students.