A bipartisan bill that would lower the costs of borrowing for millions of students is awaiting President Barack Obama’s signature. But Vermont’s congressional delegation did not get behind the plan because of the harm it could inflict in coming years.
The House last week gave final congressional approval, 391-31, to legislation that links student loan interest rates to the financial markets. The bill would offer lower rates for most students now but higher rates down the line if the economy improves as expected.
Patrick Leahy and Bernie Sanders were recently among 18 senators who rejected the bipartisan compromise; Rep. Peter Welch cast a no vote when it came to the floor.
Under the bill, undergraduates this fall would borrow at a 3.9 percent interest rate for subsidized and unsubsidized Stafford loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
For now, interest payments for tuition, housing and books would be less expensive under the House-passed bill. In all, some 18 million loans will be covered by the legislation, totaling about $106 billion this fall.
Our delegation rightly maintains they cannot support bills that do away with subsidized Stafford loans that offer lower rates to undergraduates in lower income brackets.
Unsubsidized Stafford loans already are set at the 6.8 percent interest rate. Roughly 20,000 Vermonters receive subsidized Stafford loans, and the increase, which only affects grants awarded after July 1, will cost students an additional $1,000 based on the average student debt.
That’s too much, the Vermont lawmakers say.
As a member of the Senate education committee, Sanders cited Congressional Budget Office projections that under the Senate-passed bill interest rates would hit 7.25 percent for undergraduate loans in five years. By 2018, graduate loans would go up to 8.8 percent and parents would be charged 9.8 percent on loans for their children to attend college, according to the analysis by the non-partisan agency that provides economic data for Congress.
“At a time when the average student is graduating from a four-year college $27,000 in debt, when hundreds of thousands of capable young people no longer see college as an option because of high costs, and when the U.S. is falling further and further behind our economic competitors in terms of the percentage of young people graduating from college, this legislation will make college even less affordable than it is today,” Sanders said.
Sanders also cited the CBO report that the revenue raised from the steeper loan rates will mean “huge profits” for the federal government of some $184 billion over the next decade.
“We have a middle class which is disappearing. The number of Americans living in poverty is near an all-time high. We have millions of families struggling to be able to send their kids to college. So what is the United States government doing? We are helping to balance the budget by saying to middle-class, working families that if you want to borrow money to send your kids to college we are going to make $184 billion in profits off of you. Let me go on record as saying I think that that is a very counterproductive idea. It is a dumb idea.”
Welch went so far as to sponsor legislation that would hold the interest rate for subsidized Stafford loans at 3.4 percent for another year, paid for by eliminating a loophole in the tax treatment of Individual Retirement Accounts. “It’s outrageous, unnecessary and cruel that Congress has failed to do its job and is sticking it to the middle class in this country,” he was quoted as saying at the time.
Lawmakers were already talking about changing the deal when they take up a rewrite of the Higher Education Act this fall. In addition, the Senate has required a Government Accountability Office report on the costs of colleges. That document was expected to guide an overhaul of the deal just negotiated.
That is absolutely necessary. The delegation is correct to give fail marks to this plan. Its assumptions are farfetched and not based in reality.
Providing higher education to students should not be political fodder. It should not squeeze the middle class, even under the guise of a short-term fix. Campaign promises and political posturing should not play a role in the setting of student loan interest rates.
Borrowers, and especially low-income families in Vermont and elsewhere, deserve better.