The days of fixed-rate student loans could be coming to a close, with House Republicans on Thursday advancing a proposal that would link rates to financial markets.
The GOP-led House Education and the Workforce Committee sent to the full House a bill that would offer some students a better deal at first.
The Republican chairman of the panel, Rep. John Kline, said critics were giving too much credence to Congressional Budget Office figures that anticipate future interest rates and don't accurately measure real costs for the program that helps 36 million students.
"We don't know what these interest rates are going to be. No one actually knows what they will be," Kline said. "Pick your score and make your best guess."
Democratic critics warned that graduates would face steadily climbing rates and costs over the long haul if the markets change.
"Our families deserve better than this bait and switch," said Rep. George Miller of California, the senior Democrat on the committee, who led the opposition.
Without Congress' action, interest rates for new subsidized Stafford student loans would double from 3.4 percent to 6.8 percent on July 1. Neither party wants that to happen, although there remain strong differences in the methods to dodge that.
Democrats attempted to hold the rates at 3.4 percent while Congress considers a long-term fix. Their proposal received no votes from Republicans who hold the majority on the panel.
"Student loan rates should not be subject to the whims of Congress," said Rep. Virginia Foxx, a North Carolina Republican. "Students' families and taxpayers deserve a long-term solution. ... This legislation offers predictability and simplicity."
Democrats were not swayed.
"I'll tell you what's predictable: they'll be paying more," said Democratic Rep. John Tierney of Massachusetts.
Under the GOP proposal, student loans would be reset every year and based on 10-year Treasury notes, plus an added percentage. For instance, students who receive subsidized or unsubsidized Stafford student loans would pay the Treasury rate, plus 2.5 percentage points.
Using Congressional Budget Office projections, that would translate to a 5 percent interest rate on Stafford loans in 2014, but the rate would climb to 7.7 percent for loans in 2023. Stafford loan rates would be capped at 8.5 percent, while loans for parents and graduate students would have a 10.5 percent ceiling under the GOP proposal.
"These rates reset every year. Buyer, beware," Courtney said.
Democrats on the panel objected to increasing the rates within a program that generates vast income for the federal government. The Congressional Budget Office this week revised its figures this week, reporting that federal loans will generate almost $51 billion this year. Over the last five years, that sum is almost $120 billion.
"That $51 billion is more than Exxon," Miller said.
Republicans, however, stood by the proposal as needed amid economic struggles. A two-year extension of the 3.4 percent rate for subsidized Stafford loans would cost taxpayers about $9 billion.
"I would love to have the rates at 2 percent. It's just not realistic," said Rep. Phil Roe, a Tennessee Republican.
President Barack Obama's budget outline included flexible rates for student loans, pegging the interest to markets, but did not have a cap. Republicans had long pushed for the flexible rates and Kline said he would go along with Obama on that principle while adding a cap that Democrats sought.
The White House, however, has not embraced Kline's proposal and stressed there are serious differences between proposals.
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