Obama's Déjà Vu Moment on Student Loans

NEW YORK (MainStreet)—President Barack Obama has come to a fork in the road on student loans. It appears that he's decided to take it.

Borrowing a line from catcher-cum-philosopher Yogi Berra, Obama called a threatened rate hike on Stafford loans "déjà vu all over again" at a ceremony in the White House Rose Garden last Friday. Currently held by 7.4 million students, Stafford loans subsidized by the federal government are scheduled to jump from 3.4% to 6.8% on July 1 after a 2011 increase was deferred in an election year deal between Obama and then-candidate Mitt Romney.

Also see: Will Student Loan Interest Rates Double

Obama also criticized a House Republican bill that would tie variable rates for student loans to rates for the Ten-year Treasury bill. Republicans say that the difference between the House bill and Obama's are too close to call—and should be an opportunity for a bi-partisan compromise. The main sticking point seems to be managing a rate rise.

"The difference between the House plan and the president's plan are small, and there's no reason they can't be overcome quickly," said House speaker John Boehner in a statement released on Friday. "But today, rather than working to resolve the issue, the president resorted to a campaign stunt to try to score political points."

Also see: Obama's New Student Financial Tool: Does it Matter

Obama used the occasion call out Republicans and seemed more critical of the GOP plan than he has been recently. But his plan is less student-friendly than others coming out of the Senate, such as Also see: Student Loan Bill from Sen. Elizabeth Warren Gains Traction the Sen. Elizabeth Warren (D-MA) proposal to tie the loans to the fed funds rate, currently about 0.75%. Obama and House Republicans disagree over whether rates should be variable or fixed and whether they should be capped. The bill passed in May by House Republicans would let rates reset each year based on the 10-year T-bill rate plus 2.5%. Obama's plan would track T-bills plus 0.9%. The GOP also wants to cap Stafford rates at 8.5%. The Republican plan for PLUS loans available to graduate students would be the Ten-year T-bill plus 4.5%, with a cap of 10.5%.

Tuition at public universities has doubled since most current undergraduates were born. At the ceremony, the President stated that the average graduate of a four-year college left campus with about $26,000 in student loans -- and that he had done the student loan thing himself. Obama said that he and First Lady Michelle Obama "didn't finish paying off our student loans until about nine years ago." He did not mention the pay-off amounts or where the funds came from, but he would have been about 42 at the time – about five years older than Berra was when he retired from the Yankees as a player.

Also see: The Student Loan Bill Obama Could Veto Has Similarities to His Own

He did say, however that if the Republican-backed plan became a reality, it "could actually cost a freshman starting school this fall more over the next four years than if we did nothing at all and let interest rates double on July 1."

An estimate by the Congressional Budget Office said the Republican's plan would put the Stafford rate at 5% by 2014. By 2018, it would be 7.7%.

--Written by John Sandman for Main Street

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