WASHINGTON – If Congress doesn’t take action by July 1, many of the 57,000 college students in Missouri and 337,000 in Illinois who are getting new federal student loans will be saddled with more debt than they had bargained for.
That’s because the interest rates on those loans are scheduled to double – to 6.8 percent, from the current 3.4 percent – if there is no stopgap or permanent fix by then. A temporary fix last year kept the rates at the current level, but will expire at the end of June.
On Friday, President Barack Obama – surrounded by a bevy of college students in the Rose Garden – said he wanted quick congressional action on the issue and criticized a bill approved recently by the Republican-led U.S. House as being unfair.
“I'm glad that the House is paying attention to it, but they didn't do it in the right way,” said Obama, charging that the House bill “isn't smart, and it's not fair” – mainly because it fails “to lock in low rates for students next year.”
But GOP lawmakers pushed back, accusing Obama of playing politics with the volatile issue that affects more than 7 million students at post-secondary institutions across the nation. Senate Minority Leader Mitch McConnell, R-Ky., derided Obama’s remarks as a “campaign-style event.” And Missouri Republicans had a similar message.
“It’s time for the president to stop playing politics with student loan rates and start leading the American people,” said U.S. Rep. Ann Wagner, R-Ballwin, who represents House GOP freshmen at the leadership table.
Wagner was among the 217 Republicans – including all GOP lawmakers from Missouri and southern Illinois – who backed the “Smarter Solutions for Students Act,” which passed the House May 23 on a mainly party-line vote.
Only four Democrats supported it, and among the 198 "no" votes were U.S. Reps. William Lacy Clay, D-St. Louis, and Bill Enyart, D-Belleville. Clay says he wants a better solution that the Republican-backed House bill.
“Working families are already burdened with a total student loan debt of over $1 trillion. Congress needs to act immediately to prevent the doubling of the interest rate for student loans,” Clay said on Friday.
“We need to preserve a pathway to an affordable higher education for students who are struggling to achieve economic security. That path forward should not include a mountain of new debt to crush their future.”
The Senate has not yet debated a student-loan bill, but U.S. Sen. Claire McCaskill, D-Mo., took her message Thursday to students at the University of Missouri in Columbia, opposing the GOP approach and backing an alternative Democratic approach.
“For thousands of Missouri students, higher education and the economic opportunities that come with it wouldn’t be available if not for affordable student loans,” McCaskill said. “I benefited from student loans, and I’ll fight as hard as I know how to ensure that our kids and grandkids have the same opportunities that we did.”
McCaskill is backing the “Bank on Students Loan Fairness Act,” whose main sponsor is U.S. Sen. Elizabeth Warren, D-Mass. It would allow students with federally subsidized student loans to receive the same interest rate offered to big Wall Street banks. Students now pay a 3.4 percent rate, while banks are offered a 0.75 percent rate when borrowing under the Federal Reserve’s discount window.
Obama wants Congress to lock in low student loan rates as part of a wider policy to provide broader access to higher education by keeping the cost of federal student loans as low as possible. But most GOP lawmakers would prefer to keep loan rates more in line with the market, keeping down the total cost of government subsidies.
“With the current state of the economy, today’s students and post-graduates need certainty that their student loan interest rates will not continue to be based on arbitrary numbers set by Washington politicians,” said U.S. Rep. Blaine Luetkemeyer, R-St. Elizabeth.
Luetkemeyer backed the House bill, which he said “will get Congress out of setting student loan interest rates and base them on the free market, which will strengthen federal student loan programs and serve the best interests of both borrowers and taxpayers.”
The House bill sets an upper limit on student loan interest rates at 8.5 percent; there is no such cap in the plan backed by the White House, which says that keeping the interest rates on new student loans at the current level would save the average student borrower more than $1,000 in eventual payments.
Obama, contending that “higher education cannot be a luxury for a privileged few,” said Friday that, under the House-passed plan, a student who borrows money next year could see his or her interest rate rise (or perhaps fall) every year after that, like an adjustable mortgage. He said the White House would prefer a plan that would allow students to lock in rates for the life of their loan.
In her statement, Wagner contended that “the president and House Republicans agree on the need for a long-term, market-based solution that will stop Washington politicians from arbitrarily setting student loan interest rates.” She said the House bill does that, and “the Democratic-led Senate hasn’t even passed a bill preventing these rates from doubling.” She said his event Friday was purely political.
There is no doubt that the student loan issue – with former students now owing a total of more than $1 trillion in such loans – is politically volatile.
Last year, a campaigning Obama sought to bolster his backing among young voters by using the student loan issue. Congressional Republicans, urged by GOP presidential nominee Mitt Romney, eventually relented and extended the 3.4 percent rate for a year.
A “fact sheet” released Friday by the White House said that 157,023 post-secondary students in Missouri had taken out more than $585 million in subsidized federal student loans for the 2013-14 school year – an average of $3,729 per student. In Illinois, 337,440 students took out $1.4 billion in subsidized loans, an average of $4,037 per student.
On Thursday, McCaskill met with 16 student leaders at the University of Missouri in Columbia to discuss their student loan debt and make a pitch for the Senate Democratic bill she is supporting. In a discussion afterward with news reporters, McCaskill said she might back reasonable amendments to the Senate bill.
“We might need to add to the proposal some basis points for (loan) administration, and maybe a slight increase in that rate to embrace a default rate that might occur,” she said, according to the Associated Press. “But the principle is a sound one. If we are making it easy for financial institutions to access capital that belongs to the United States, we ought to try to make it easy for students to access (that same) capital.”
U.S. Sen. Roy Blunt, R-Mo., the fifth-ranking Senate GOP leader, is calling for a "bipartisan solution" that would make permanent reforms to the loan system.
"We can all agree that every young American should have the opportunity to achieve a college education," Blunt said in a statement Friday.
"Yet while President Obama appears more interested in staging campaign-style events to stir up partisan divisions in Washington, I believe we must work together to achieve a bipartisan solution that will provide permanent reform to help young Americans avoid a higher interest rate on their student loans."