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Senior advisers to President Obama say they would recommend he veto a bill, H.R. 1911, that would tie the interest rate on student loans to the rate at which the U.S. government borrows. Unless Congress takes action, subsidized Federal Direct Stafford Loans for undergraduates will double to 6.8 percent on July 1. But this bill, dubbed Smarter Solutions for Students Act, is the wrong approach, according to a statement from the Executive Office of the President:
First, the bill would not guarantee low rates for today's students. A rate that continues to vary after the loan has already been taken out would create uncertainty and lessen transparency for students and their families who are making decisions about borrowing for college. Second, the bill's changes would impose the largest interest rate increases on low- and middle-income students and families who struggle most to afford a college education. Third, the bill does not include the President's proposal to extend repayment options to borrowers who have already left school and often face the same debt burdens as current and future students. Finally, the Administration believes that student loan interest rates should not be raised to reduce the deficit.
The Congressional Research Service says that the bill would force students and families to pay higher interest costs than is the case today. That's so even if interest rates doubled as scheduled in July.

The bill was introduced by Republican Rep. John Kline of Minnesota and has five co-sponsors. Opposition isn't confined to the White House. Kline's proposal has sparked vigorous Democratic opposition. Rep. George Miller of California has presented an analysis on H.R. 1911 that states the bill would make attending college more expensive.

"According to the Congressional Budget Office (CBO), increased interest rates for student loans will cost students almost $4 billion in additional loan interest charges relative to current law. [...]

[The variable interest rate is a classic bait-and-switch. [...] By the time next year’s freshmen graduate and start repaying their loans in 2017, the interest rate on that loan taken out during their freshman year is projected to more than double beyond today’s current rate for subsidized Stafford loans.

The Democratic proposal would freeze the current 3.4 percent rate on subsidized loans for two years.

Originally posted to Meteor Blades on Wed May 22, 2013 at 01:27 PM PDT.

Also republished by Daily Kos.

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Comment Preferences

  •  Democratic proposal (7+ / 0-)

    I'm very disappointed that it appears that Democrats only propose to leave the current interest rate in place ... And then only for two years.

    What happened to Senator Warren's proposal to give students the same rate as the big banks, essentially zero?

    Again, if this is a negotiation, I fear we are going to "meet in the middle" at something around 5%.

  •  Trying to tie a mystery variable interest rate to (8+ / 0-)

    a student loan, that for life has no default or bankruptcy option, is a new low, even for the evil banksters who pocket all that guaranteed profit over prime.

    Living the austerity dream.

    by jwinIL14 on Wed May 22, 2013 at 04:18:09 PM PDT

  •  I am waiting for reduction in parent Plus loans... (9+ / 0-)

    My rate is 7.8% for Gods sakes. Why do we have to pay more than 2x's the mortgage rate? We need a movement on this and student rates.

    Republicans only care about themselves, their money, & their power.

    by jdmorg on Wed May 22, 2013 at 04:38:58 PM PDT

    •  You have George W to thank for that. (3+ / 0-)

      PLUS loans used to be a great deal both for the rate and the fact that they are unsecured.

      The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. Bertrand Russell

      by accumbens on Thu May 23, 2013 at 06:44:16 AM PDT

      [ Parent ]

    •  It rises over 10% (2+ / 0-)
      Recommended by:
      Buckeye Nut Schell, figbash

      Interest rates are near historic lows; post-inflation federal debt is literally below zero -- you pay the feds to take your money.  The Republican plan makes student loans adjustable, so they will rise with interest.  Once the economy recovers, rates rise to the 10-year T-bill rate plus 2.5 to 4.5%, up to 10.5%.  So under the Banana Republican plan, your 4.3% loan now could be 10.5% after you graduate, roughly doubling payments.

      It's the student loan equivalent of the teaser rates that got so many homeowners into trouble in the 2000s.  Today's very low T-bill rates create the teaser; the "real" rate is 10.5% for PLUS, 8.5% for Stafford (now 3.4%).

      Obama's plan is only marginally better.  Loans are fixed rate, so today's students don't get shafted after graduation.  But rates are tied to T-bills when the loan is awarded, and that is NOT capped:

      Neither Obama’s plan nor the Senate Republican proposal included an interest rate cap. Since those proposals were first put forward, student advocates have argued strongly in favor of capping interest rates, and some House Democrats seemed sympathetic to their arguments. They’ve warned that if interest rates increase to the historic highs of the 1980s, students could be forced to take out loans with interest rates above 15 percent. But the Obama administration sees its expanded income-based repayment program, which ties borrowers' repayment to their discretionary income and forgives the debt after 20 years, as the best way to ensure that borrowers can afford their loan payments.
      So under the Obama plan, future students may face a usuriously high rate, but will be granted partial dispensation on payments so long as they stay poor.

      A pox on both their houses.

  •  How about Elizabeth Warren's proposal? Tie them (5+ / 0-)

    to the rate that banks borrow money from us!

    Then they came for me - and by that time there was nobody left to speak up.

    by DefendOurConstitution on Thu May 23, 2013 at 06:36:45 AM PDT

    •  They do... it's the vig that matters (1+ / 0-)
      Recommended by:

      Warren's proposal is for one year only, to tie rates to short-term "discount window" loans.  It doesn't apply the big vigorish that both the Obama and Kline plans do.  If interest rates rose and the Warren plan were still in effect, new-loan rates would rise.  But that's not her plan.

  •  What is f***ing WRONG with these people? (5+ / 0-)

    Honestly, I just want to go kick them in the shins.


    Jon Husted is a dick.

    by anastasia p on Thu May 23, 2013 at 06:38:18 AM PDT

  •  Obama's proposal is also a bait and switch. (1+ / 0-)
    Recommended by:

    His proposal would keep them low for a couple of years and then tie them to market rates.  Market interest rates sound good now because interest rates are at historic lows.  That's not likely to continue for long and in two years and going forward from there rates will be much higher.  An unsecured student loan at market rates will be much higher than government guaranteed loans and will be out of reach from most students.  

    The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. Bertrand Russell

    by accumbens on Thu May 23, 2013 at 06:49:56 AM PDT

  •  Student loans need to be harder to get (0+ / 0-)

    This whole discussion is wrong headed.  One of the reasons college tuition has increased dramatically is because money is so easy to get for college loans.  Um, bubble anyone?  We've seen this over and over again in various parts of the economy.

    Students do not need lower interest rates on "easy money." They need loans to be harder to get.  Yes, it may sound harsh in the short-run, but we are not short-term people here.  We need to bring down the cost of college tuition and part of that solution is to stop the flow of cash to the consumers of ever-inflating education fees.

    •  No, we need lower cost of higher education... (7+ / 0-)

      It is not the availability of money causing tuition prices to skyrocket, it is the insertion of the corporate mentality and corporate money driving public schools to perform like a corporation rather than a benevolent benfit of citizenship for the overall benefit of civilization.

      Public schools were once considered an investment for the country.  Investing in our youth for a brighter tomorrow.  Now, it is about getting nicer sports stadium and making a buck.  I read somewhere that the US made more money on student debt last year than Exxon made in oil profits.

      That's America for you, solving it's debt (make believe)crisis by stealing from our children's futures.

      "Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour..."

      by Buckeye Nut Schell on Thu May 23, 2013 at 07:16:40 AM PDT

      [ Parent ]

    •  Government Funding Negotiation (0+ / 0-)

      No, student loans should be as easy to get as their likelihood of paying off in higher income, plus some boost to raise the floor.

      What should be reduced is the amount charged by schools. One way is for the government to directly make all loans from the Education Department. And negotiate with schools using that huge buying power, the way it does (when allowed) in Medicare.

      To reduce risk of default (partly by increasing chances of post-graduate success), loans shouldn't start repayment until as long after graduation as the enrollment lasted (eg. 4 years). Bonus incentive for good grades adds another year delay for each 0.1 point GPA above the school's median that graduation year.

      And all public schooling should be free, including colleges and whatever else schools teach. That competition will also drive down private school prices. To ensure that competition works, the college ratings industry must be policed properly, with fraudsters (as several prominent colleges have recently been revealed to be) put in jail, and the schools forced to give back money charged under that false advertising.

      A free and informed market, bolstered by public competition and aggregation, is the best way to get the most people the best education at the right price.

      "When the going gets weird, the weird turn pro." - HST

      by DocGonzo on Thu May 23, 2013 at 09:41:35 AM PDT

      [ Parent ]

  •  Its absolutely disgusting that the Govt (1+ / 0-)
    Recommended by:

    is even contemplating using student debt (which is something that shouldn't even exist in the first place) to make a profit.  The Federal Govt doesn't need our money in order to spend its own currency.  The federal Govt is the monopoly issuer of our national currency as established in Article 1 Section 8 of the US Constitution.  Educating the populace is one of the primary responsibilities of the Govt, education should be free to the citizenry.......the Govt can never run out of US dollars as the dollar is not a commodity that grows on trees....its an invention.

    "The Earth is my country and Science my religion" Christiaan Huygens

    by Auburn Parks on Thu May 23, 2013 at 06:54:44 AM PDT

    •  Inflation (0+ / 0-)

      Inventions also have limits. Increasing the dollars without increasing the value they represent is inflation. When increasing the dollars increases the value faster than inflation, that's worth doing. Except where the value increase isn't evenly distributed among people, so some gain value while others lose money.

      Inflation is good for debt holders, if their income increases with inflation. But it's still a problem, as the value increase is very unevenly distributed in the USA.

      Inflation is a real problem, as is clear from even simple theory and vast history. It's not as big a problem as insolvency and others, but it's not entirely nonexistent.

      "When the going gets weird, the weird turn pro." - HST

      by DocGonzo on Thu May 23, 2013 at 09:46:06 AM PDT

      [ Parent ]

      •  Sure, but there has been no historical correlation (0+ / 0-)

        between the deficit and inflation in the USA.  Inflation is complicated.  Check out the following link

        You'll see inflation charted with the change in the Govt deficit and there will be no relationship.
        Inflation follows much more closely oil prices.  
        Demand pull inflation can only ever be a real problem when the economy is running out full emplloyment and capacity.  Otherwise new money will be absorbed by increasing the number of goods and services produced which maintains relative prices.

        M x V = P x Q
        Money supply
        Velocity of money
        Relative prices
        Quantity of goods and services

        Inflation is a relationship between all of the above variables so you cant ever say doing this one thing will increase inflation unless you also know what the other three variables will do in response.

        The amount of new money the Govt has created through deficit spending since 1979 has increased 1900% from $800 billion in Treasury bonds to $15+ trillion in 2012 and yet inflation is 1% right now.  
        If the Govt was able to create $3 trillion in new money between 2009 and 2012 alone and there was no inflation....well, that should be proof enough for any non-biased observer to conclude that simply making new money is not enough to drive increasing inflation all by itself.  Like I said, it all has to do with the economic conditions.  

        "The Earth is my country and Science my religion" Christiaan Huygens

        by Auburn Parks on Thu May 23, 2013 at 01:02:54 PM PDT

        [ Parent ]

        •  I Didn't Say Deficit (0+ / 0-)

          You said print unlimited money without consequences. I pointed out that inflation is a consequence, an important and complex one. The Fed was created to manage inflation, and then also given a mandate to manage unemployment. It's done far better at inflation than at unemployment, because of who benefits/suffers.

          I didn't say anything about the deficit. Inflation has come not only through the increased money supply after the 2008 collapse, but also through all the increased money supply during the bubble issued as credit (and largely not repaid).

          There is absolutely inflation far more than 1%. The stat you cite doesn't include food, energy or other commodities, some essential, that have inflated. The stats are cooked, depending on who benefits/suffers. Just as the unemployment stats are cooked.

          "When the going gets weird, the weird turn pro." - HST

          by DocGonzo on Thu May 23, 2013 at 02:25:50 PM PDT

          [ Parent ]

          •  You should really take the time to slow down (0+ / 0-)

            and reread my original comment again.  I never said anything about "printing unlimited money without consequences".....I am sorry but you are dishonestly misrepresented my comment.  

            Of course there is no technical limit to the amount of money the Govt can create....there are always consequences no way would ever say that there weren't.  The reality is that the Govt can afford to offer free post high school education to all Americans, and the only questions should be
            A) Is this a good use of public money?
            B) Will the resulting expansion in the higher education industry take up too many private sector resources and result in rising inflation beyond what is acceptable?

            The question should never are we going to afford this Govt program.

            "The Earth is my country and Science my religion" Christiaan Huygens

            by Auburn Parks on Thu May 23, 2013 at 03:46:38 PM PDT

            [ Parent ]

            •  How Are We Going to Afford (0+ / 0-)

              Look, I'm having an honest disagreement with you. You evidently weren't clear in your comment I responded to if I'm getting it wrong. You said in it that the government can print as much money as it wants, so there's never a question of whether it can afford to spend money on something. But that causes inflation, as I explained. Which is a reason we can't just do it.

              "When the going gets weird, the weird turn pro." - HST

              by DocGonzo on Thu May 23, 2013 at 09:00:29 PM PDT

              [ Parent ]

              •  And I responded to you about how and when inflatio (0+ / 0-)

                can become a concern in my second comment.  After which you told me you weren't talking about the deficit and that I said we could print unlimited money without any consequences.

                First of all, the deficit is the record of the amount of new money that congress creates each year.  Congress already creates money out of thin air, there are no laws are processes to change or amend.  This is how the current post gold standard monetary operations work for the Federal Govt.

                What happens when the Govt deficit spends from an operations and monetary POV?
                First the Treasury issues securities through the open market process.  There are 21 primary bond dealers who are legally required to make bids on the bonds.  If necessary, the Fed will buy already existing bonds off the secondary market to make room for the new purchases.  
                So, the first accounting step is an asset swap Reserves at the fed or deposits in checking accounts get exchanged for Treasury bonds.  The total number of financial assets stays the same in the first step.  And finally, the Treasury's general account gets credited an equivalent amount of money as the Bond sale.
                The 2nd step is the Govt sends out checks that draw down on the Treasury's checking account at the Fed and increase the checking accounts with Grandma's SS payment.  THIS money (or financial asset to keep things equivalent) is a totally new financial asset for the private sector.  It is free money from Grandma's accounting POV.  This is the mechanism by which the Private sector gets all of its NET financial assets (a financial asset for the private sector without a corresponding private sector liability).  Consequently, that liability is the deposit at the Fed of the new security holders.

                This is how our modern fiat monetary operations work right now.  The gold- standard has been over for more than 40 years.  This is how the Govt creates new money.  This is why I responded with the proof about how the deficit and new money creation by itself does not lead to inflation, its all based on economic conditions.  Like I said, $3 trillion in new money in 2009 and 2010 and no inflation.....this is proof that your final sentence.....
                "so there's never a question of whether it can afford to spend money on something. But that causes inflation, as I explained. Which is a reason we can't just do it."

                Is partially wrong.
                Yes, the Govt can afford anything for sale in US dollars.... No, inflation is not the direct result of new money creation (deficit spending).  How much new money will cause inflation?
                $1 new?....
                $100 mil
                $100 bil
                $1 Tril
                It all depends on how much excess and unused capacity the economy has in it.

                "The Earth is my country and Science my religion" Christiaan Huygens

                by Auburn Parks on Fri May 24, 2013 at 04:50:05 AM PDT

                [ Parent ]

  •  hey students! your uni might be selling higher (0+ / 0-)

    interest rates from the right wing radio stations your university gets a bit of money from to broadcast their sports on.

    This is a list of 76 universities for Rush Limbaugh that endorse global warming denial, racism, sexism, and GOP lies by broadcasting sports on over 170 Limbaugh radio stations.

    by certainot on Thu May 23, 2013 at 07:06:55 AM PDT

  •  GOP logic (1+ / 0-)
    Recommended by:

    Sure, let's punish America's youth for the excesses and ineffective leadership of the old rich white men in charge.

    In fact, why stop at sticks? Why not a carrot? Let's go whole hog and tie the return rate on a 10-year T bill to the unemployment rate!

    face palm

  •  Free Public Education for All (1+ / 0-)
    Recommended by:

    Public education should be free to all who are accepted. K-12 through college, graduate, continuing education, technical training - whatever they teach at a public school. To qualify to apply, graduation from a previous school or its equivalent in the same state. And at boarding schools, free room and board.

    This much is obvious. All our foreign competitors who succeed (and may who don't) do this. Except the ones who are following the US lead to the bottom, starting with destroying universal access to public education.

    The Fed should also loan money up to the minimum wage to anyone in school at the same rate the Fed is lending to banks. Directly administered by the Federal to the state Education Department to the school, collected from the student the same way.

    Driving the unemployed and undereducated into schools by paying for it (and thereby paying to build up schools) is the best way to grow a competitive economy. To say nothing of make adults of our nation.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Thu May 23, 2013 at 09:32:18 AM PDT

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