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Six Bills Into One Student Loan Deal Won't Go

NEW YORK (MainStreet)—There are six student loan bills in Congress, plus a proposal from the White House. There is one interest rate for subsidized Stafford loans. Come July 1, there will continue to be one interest rate. Whether or not the subsidized Stafford rate will double from 3.4% to 6.8% is anyone's guess.

Three bills are in the Senate, three in the House. Three have long term solutions, three are short term. Then there is the Obama administration's plan, which the Republicans say is so much like their House bill that President Barack Obama favors partisanship over a solution by not adopting it. Obama, meanwhile, says that the Republican bill would be more expensive to borrowers in the long term than if rates doubled.

Obama may be right, but it's moot at this point. The Democrat's Reed-Harkin bill, which would freeze the current rate for two years, got 51 votes in the Senate but for procedural reasons, needed 60. With fewer than six days before the Stafford loan rate expires, none of these bills currently has a chance.

Lauren Asher, president of Oakland, California-based The Institute for College Access and Success, which has proposed its own remedy—declined to handicap the chances of any of these bills. "I have no idea what's going on in the House or Senate committees," she said.

"There's been a lot of posturing about how there isn't much difference between these proposals when in fact there is a lot," said Asher. "A permanent change that increases the cost for borrowers is worse than no change at all."

"Our view of the Republican bill is that it will pay down the debt on the backs of people with student loans. But we have concerns about Obama's proposal as well. Obama wants an expansion of the income-based repayment plan, but he also puts no cap on how high rates can rise, giving borrowers no protection from rising interest rates. The Obama plan has that in common with the Republican plan. The Republicans and Obama say that having no rate cap is O.K., because of the income repayment plan. We say that this is no substitute for a rate cap."

To qualify for an income-based repayment (IBR), borrowers must have a partial financial hardship, defined by the Department of Education website as when the monthly amount required on your IBR-eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under IBR.

"The Obama administration wants to finance an extension of the income-based payment plan and not tie it to deficit reduction," said Asher. "That's a significant difference. But again, there's no rate cap. Interestingly, the Republicans' variable rate proposal in the House does have a cap." The bill introduced by Rep. John Kline (R-MN) and Virginia Foxx (R-NC) caps all Stafford loans at 8.5%. The Reed-Harkin Senate bill has caps baked into the legislation: 3.4% for subsidized and 6.8% for unsubsidized Stafford loans.

"There have been arguments from Obama and the Republicans that having no cap is O.K., because we have income based repayment plans," said Asher. "But you see costs passed on to students even in income-based plans when rates rise."

In addition, Asher said the long-term proposals that she's seen are generally worse than letting rates double, which would include the Republican Coburn-Alexander bill that came out of the Senate and would cap rates for each individual loan. But rates could rise without limit, linked to the 10-year Treasury bill.

Meanwhile the card the Republicans continue to play links the Obama plan to their own—even if the similarities are misleading. In the face of a Senate logjam, this has some appeal.

In a June 21 letter to Obama, House Speaker John Boehner (R-OH) wrote, "Without your intervention, Senate Democrats are going to double interest rates for millions of college students." He added, "The House passed a plan that mirrors your own. The differences between the House plan and yours are minor." He continued, "Unfortunately, they cannot be resolved if Senate Democrats refuse to even accept our shared approach and the need for a long-term solution."

Both sides seemed to favor sarcasm over solutions—not a good sign at this late date. "While we're glad House Republicans are paying attention to this looming problem this time around, the plan they passed doesn't solve it," said White House spokesperson Matt Lehrich. "In fact, a typical freshman could actually pay more under their plan than if Congress did nothing at all."

Rates jumped in 2006 when Republicans had control of the House and used increases as a part of a deficit reduction strategy. Democrats took back the House a year later and passed a bill introduced by Rep. George Miller (D-CA) that reduced rates for the next five years. That bill expired last year. Miller's Washington, DC press secretary for education, Tiffany Edwards, said, "We're calling on Republicans to reverse their vote that would result in the doubling of interest rates on July 1."

Like House Republicans, indeed like nearly everyone, Edwards did not identify an area of compromise both sides would sign up for. A key feature Rep. Miller proposes—freezing rates for two years—mirrors the Democrats' Reed-Harkin bill that is stalled in the Senate.

--Written by John Sandman for MainStreet

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