On July 1, more than 7 million college kids will see their federal student loan rates double unless Congress reaches a compromise to avert the looming hike. Given the recent track record of the legislative branch, that may not be a comforting proposition. But in this case history offers a glimmer of hope. A year ago, amid a tight presidential campaign, Barack Obama was able to use the presidential bully pulpit to pressure Congressional Republicans into postponing the planned rate spike for 12 months. Now, with federal subsidies again set to sunset in a month, Obama gathered a group of college kids in the sweltering Rose Garden Friday morning in a bid to force Republicans to bend. “If this sounds like deja vu all over again, that’s because it is,” Obama said. “We went through this, and eventually Congress listened to all the parents and young people who said, Don’t double my rate.”
But the same play may not work twice. It’s no longer campaign season, which means Republicans won’t be as concerned about broadsides claiming they’re trying to balance the budget on the backs on cash-strapped college kids. In fact, as another student-loan showdown gets underway, Republicans may be in better position to win the political skirmish.
That’s because the House GOP has already acted to forestall the rate spike. In late May House Republicans they passed a bill that would scrap the subsidized loan rate of 3.4 —set to spike to 6.8%—and instead peg the loans to the yield of 10-year Treasury notes.The move partly mirrors a plan put forth by President Obama, whose 2014 budget proposed to link the interest rates of federal loans to market trends.
The House GOP plan would set the rate for popular federal Stafford loans at 2.5% above the 10-year Treasury note, and allow the rate to fluctuate over each year of the repayment period. Obama prefers to charge a lower rate than Republicans—a little less than a point above the Treasury rate—fixed over the life of the loan. The President’s plan would not establish a cap on the maximum rates, while House Republicans set it at 8.5% for Stafford loans. The White House says a new student taking on the average college-loan burden of more than $26,000 would pay a few hundred dollars more under the GOP proposal than if the subsidies simply sunset as scheduled, while Obama’s proposal would save them $4,000 over the life of the loan.
Obama, who long ago decided that ginning up public pressure on his opponents works better than playing the inside game, is hoping to make the GOP cave on the issue for a second time. “I’m glad the House is paying attention to it, but they didn’t do it in the right away,” Obama said. “The House bill isn’t smart, and it’s not fair.”
The problem is that Senate Democrats have yet to pass a bill of their own. “We’re going to spend the week mocking him for attacking us to take up a bill we already passed,” says a House Republican leadership aide. “It’s Harry Reid he should be attacking.”
It’s not that Democrats don’t have proposals. One bill, proposed by Iowa Senator Tom Harkin and Rhode Island Senator Jack Reed, would freeze the current rate for two years to buy time for Congress to craft a sweeping solution to combat stratospheric college costs, which have nudged total student debt past the $1 trillion mark. The bill’s $8.3 billion price tag would be defrayed by closing choice tax loopholes, such as one for producers of tar-sands oil. Another proposal, submitted by Massachusetts Senator Elizabeth Warren, would cut loan rates for one year to the .75% that the Federal Reserve charges big banks at its “discount window.” The comparison, critics note, is inapt. Whereas the bank rate is for overnight lending, students taking on a 10-year loan are a riskier proposition. A pair of Brookings Institution scholars called Warren’s populist proposal a “cheap political gimmick.” Even if you disagree, it’s still just a temporary fix.
The similarities between the President’s proposal and that of House Republicans are significant enough that a solution should be achievable. But with Obama opting to campaign his way to a deal, and House Republicans arguing they’ve come far enough by taking up his market-based approach, a compromise is so far nowhere.
With reporting by Zeke Miller