Obama Urges Student Loan Borrowers To Push For Steady Interest Rates
President Obama urged Congress to prevent the Stafford student loan interest rates from doubling and reminded students, interns, graduates, and other student loan borrowers that it was their voices in the debate that pushed legislators to act when the same issue came to a boil last summer.
"I’m asking young people to get involved and make your voices heard once again. Last year, you convinced 186 Republicans in the House and 24 Republicans in the Senate to work with Democrats to keep student loan rates low," Obama said, appearing in a press conference held in the White House Rose Garden Friday morning.
"You made something bipartisan happen in this town that is—that's a powerful thing. You guys were able to get Democrats and Republicans to vote for something that was important," he said.
Last year a similar showdown unfolded, but thanks to young people, their families, consumer advocacy groups, and a successful campaign-style approach using social media, the doubling of Stafford loan interest rate from 3.4 percent to 6.8 percent was prevented before the July 1 deadline. The current 3.4 percent cap was extended—but just for one year.
Obama also slammed the House Republican version of a "simple" fix to address student loan debt.
"Now, the House of Representatives has already passed a student loan bill, and I’m glad that they took action," the president said, "but unfortunately, their bill does not meet that test. … It eliminates safeguards for lower-income families. That’s not fair."
Some of Obama's criticism of the bill—he threatened to veto the House student loan bill if it ever touched his desk—may seem unwarranted given the similarities between his budget proposal and the House's approach.
“Picking a fight out of thin air where there’s policy agreement isn’t going to get the White House out of trouble,” Brendan Buck, spokesman for House Speaker John A. Boehner (R-OH), said this week about the president's student-loan push. “And it certainly doesn’t do anything to help students facing a looming rate hike.”
Yes, both the president's budget blueprint and the House long-term proposals tether federal education loan interest rates to financial markets. But delve slightly deeper and the differences between the two plans become clear:
- Obama's proposal includes a Pay As You Earn (PAYE) loan repayment plan for all borrowers with federal student loans. This would ensure that loan payments never exceed 10 percent of a borrowers' discretionary income. The House bill does not.
- Obama's plan would keep the rate fixed throughout the life of the loan—giving students and their families a clear picture of the true cost of the federal loan. In contrast, the House's version would allow Stafford loan interest rates to fluctuate annually alongside the market, leaving student loan borrowers in the dark on the long-term cost of their initial investment.
- Obama's proposal is cost neutral. The House plan, on the other hand, would essentially tax student loan borrowers by hiking up the interest rates to pay down the deficit by about $4 billion.
In Obama's budget proposal, more than 7 million subsidized Stafford loan borrowers would see savings this year, with loan interest rates dipping below their current 3.4 percent—but the plan is not perfect. Because there's no ceiling for how high the interest rate can reach, the plan is riskier for future generations of borrowers who might incur higher rates tied to financial markets.
The House plan does have a cap, but it's arguably too high for borrowers. If Congress were to do nothing this year and Stafford loan interest rates were allowed to double, millions of Americans would actually save more money than they would if the House proposal was allowed to pass.
Senate Democrats have introduced a bill that would extend the current cap on Stafford loan interest rates for two years, so that Congress could have ample time to consider other proposals to address the myriad of issues education loan borrowers face through the reauthorization of the Higher Education Act.
Sen. Elizabeth Warren (D-MA), who also co-sponsored the Senate bill, proposed that student loan borrowers get the same interest rate deal the Fed gives big banks—a near-zero 0.75 percent—for a year, until a more comprehensive solution for dealing with student loan debt was found.
And Sen. Kirstin Gillibrand (D-NY), proposed that the Department of Education allow education loan borrowers with interest rates higher that 4 percent to refinance their rates to a fixed 4 percent.
On Friday, President Obama stressed that whatever route Congress chooses, it should be a path that carries on the American tradition of opportunity and accessibility.
"During the Civil War, Lincoln had the foresight to set up a system of land grant colleges," he said. "At the end of World War II, we set up the GI Bill so that people like my grandfather could come back from a war and get an education. All these things created the greatest middle class on Earth."
“We cannot price the middle class … out of a college education," he continued. "We can’t keep saddling young people with more and more debt just as they’re starting out in life.”
On Wednesday, June 5, Campus Progress will host Student Debt Day 2013 to give college students from around the country the chance to tell their representatives why keeping student loans affordable matters to them. Find out how you can get involved here.
Naima Ramos-Chapman is an associate editor at Campus Progress.