NEW YORK (MainStreet)While President Obama has threatened to veto the Republican sponsored House bill he says would result in a two-fold interest rate increase in student loans, the GOP proposal and his own are more similar than the partisan divide would suggest. Congress and the White House have until July 1 to act, when rates on most Stafford loans are set to double from 3.4% to 6.8%. Meanwhile some observers believe essence of the student loan crisis goes beyond the problems posed by interest rates.
The Smarter Solutions for Students ActHR 1911included flexible interest rates pegged to the 10-year Treasury billthe point where the two proposals are most similar. The Obama plan would tie rates to 10-year T-bills plus 0.9%. In the Republican bill, rates are tied to the T-bill plus 2.5% The Obama plan also has expanded income-based repayment and loan forgiveness options.
In discussing the Republican bill, Rep. John Kline (R-MN) said last week that "The legislation is based on the president's own proposal and provides a solid basis for negotiation through the legislative process." Obama's veto threat, he said. ". . .proves the president would rather pick a partisan fight with Congress instead of work in good faith on a bipartisan solution."
Rep. George Miller (D-CA) likened the Republican solution to the "teaser rates" that lead to the home mortgage crisis of 2007. Over the long haul, he said, a variable rate system would emerge, forcing students to pay higher rates on old loans when rate environment changes and those rates go up.
Senate Democrats, meanwhile, have an alternative plan to freeze rates until 2015 at 3.4%. Passage of the House Republicans may drive them to an unwanted compromise as the July 1 deadline closes in.