With just two working days left before the U.S. government doubles some student-loan interest rates, lawmakers are haggling over what to do about it.
The argument isn’t over whether to allow rates to rise above 3.4 percent, the level set by law until July 1. It’s about how much borrowing costs will increase.
“The likelihood of students keeping the interest rate they had for the last two years is diminishing by the hour,” said Terry Hartle, vice president for public affairs at the American Council of Education, the largest lobbying group for colleges and universities. “The outcome will be students will pay more than 3.4 percent in the short term,” he said in a telephone interview.
Unless Congress acts, the interest rate for subsidized Stafford loans for undergraduates from low-income families will increase to 6.8 percent from 3.4 percent. More than 7 million students use that direct-from-Washington loan program.
Instead of enacting a law to extend that rate or set a new flat rate, lawmakers have been negotiating ways to let the rate float by linking it to 10-year Treasury notes.
Getting an informal agreement on the concept of flexible rates was the easy part. The more challenging part of the negotiations, according to those involved, has been figuring out how much flexibility to build in, and how much profit the government should extract.
Government Profit
Senate Majority Leader Harry Reid contends that there should be no profit at all.
“The issue is this: Republicans want deficit reduction,” the Nevada Democrat said June 25. “We don’t think there should be deficit reduction based on the backs of these young men and women who are trying to go to college.”
Complicating the talks is the 55 percent increase in the yields of 10-year T-bills, to 2.54 percent, since May 1.