Obama signs temporary fix to student loan rates
After months of strained deliberation in Congress, a bipartisan deal that restored lower interest rates for student loans was recently signed into law by President Barack Obama, allowing students to let go of financial uncertainty as the academic year begins.
“I want to thank … all the members of both the House and Senate from both parties that came together to design a sensible, common-sense approach to keeping student interest rates at a reasonable level so that young people have a better opportunity to go to college, get the education that they need not only to better their own lives but also to strengthen the country’s economy,” Obama said before signing the bill, according to a White House press release.
The new legislation ties student loan interest rates made on or after July 1 to the market and locks in the rate for the life of the loan. For the coming school year, undergraduates can receive federally subsidized Stafford loans at an interest rate of 3.86 percent. Without this compromise, students would be borrowing at a rate of 6.8, as percentages would have doubled on July 1 with the discord in Congress.
“We have demonstrated to the American people that this body has the capacity to overcome partisan differences,” said Independent Sen. Angus King of Maine after the Senate passed the bill by a vote of 81 to 18.
According to NBC, King said the bill offers a long-term, market-based solution that lowers and caps interest rates for all students taking out a loan and finally gets Congress out of the business of setting rates.
Through Democratic efforts, the law guarantees a limit on how high loan interest rates can climb, setting the ceiling for undergraduates at 8.25 percent, graduate students at 9.5 and parents at 10.5.
The Bipartisan Student Loan Certainty Act of 2013, as it is being called, is expected to give 11 million students this year lower interest rates, saving the average undergraduate $1,500 on interest charges on this year’s loans, according to USA Today.
Yet the bill secures these rates through the 2015 academic year only, drawing massive criticism toward the bipartisan effort.
“I honestly think we should slowly increase the rates as opposed to pushing off the problem for a few years,” said nutrition junior Breanna Larsen. “Once the term of agreement has ceased, as it will in 2015, students will likely be faced with loan interests doubling, tripling or even quadrupling.”
NBC reported that Sen. Elizabeth Warren, D-Mass., called the final compromise bill “obscene.” She said supporters of the bill “say that it will lower interest rates for students this year, and that’s all that matters. That’s the same thing the credit card companies said when they sold zero-interest credit cards and the same thing subprime mortgage lenders said when they sold teaser rate mortgages.”
Even though the bill was passed and signed into law, senators are already talking about trashing the deal when they take up a rewrite of the Higher Education Act this fall.
For now, interest payments will be less expensive. According to Time Magazine, about 18 million loans will be covered by the legislation, totaling about $106 billion this fall. The Congressional Budget Office also estimated the bill would reduce the deficit by $715 million throughout the next decade, as federal loans would be a $1.4 trillion program.
Although this is good news for now, Obama assured students that “our job is not done, because the cost of college remains extraordinarily high.”
“It’s out of reach for a lot of folks, and for those who do end up attending college, the amount of debt that young people are coming out of school with is a huge burden on them,” Obama said at the signing of the bill, according to the press release. “It’s a burden on their families. It makes it more difficult for them to buy a home. It makes it more difficult for them if they want to start a business. It has a depressive effect on the economy overall, and we’ve got to do something about it.”