Economy & Budget

Do Republicans have a ‘smarter solution’ for student loans?

Do Republicans have a 'smarter solution' for student loans?

The House passed the Smarter Solutions for Students Act  last week with a 221-198 vote. Congressman John Kline of Minnesota’s 2nd district, on behalf of himself and Congresswoman Virginia Foxx of North Carolina’s 5th district, introduced the bill which will amend the Higher Education Act of 1965.

While the current rate for Federal Direct Stafford Loans, both subsidized and unsubsidized, now sits at 3.4 percent, that rate is expected to double to nearly 7 percent. The interest rate proposed in the bill will allow students to lock in at current naturally low rates and locks in at a rate equal to the 10-year Treasury notes and 2.5 percentage points.

However, the rate itself shall never exceed 8.5 percent. In this regard, it can be argued that the bill doesn’t actually call for an entirely market-based rate, as the cap would be maintained imposed regardless of natural fluctuations that may occur.

Here are Kline and Foxx in the Washington Times:

The Smarter Solutions for Students Act is the product of numerous hearings and discussions with higher-education experts. It’s been written in good faith. Despite our best efforts, however, this responsible legislation has already come under fire from some congressional Democrats. These defenders of the status quo are angry that the Smarter Solutions for Students Act will allow interest rates to fluctuate with the market, and claim a better plan is to simply extend current rates for another year or two at a cost of roughly $8 billion. We respect their views, but their plan just passes the buck, once again.

Despite the Democratic opposition, the President himself surprisingly agrees that rates should be tied to the free market as opposed to fixed by some government official.

“The Smarter Solutions for Students Act is based on what the president has proposed in his own budget, which I believe is a commonsense approach,” said Republican Congressman Glenn Thompson of Pennsylvania’s 5th district.

Don’t believe it? On page 45 of his Fiscal Year 2014 Budget, he goes into detail:

The 2014 request proposes to change the structure of interest rates on Federal student and parent loans to provide borrowers with market-based rates. Interest rates on new loans would be set at the beginning of each academic year based on the then-prevailing cost of Government borrowing, and remain fixed at that rate for the life of the loans. Rates would be determined based on the10-year Treasury note rate with add-ons of 0.93 percentage points for Subsidized Stafford Loans, 2.93 percentage points for Unsubsidized Stafford loans, and 3.93 percentage points for PLUS Loans.
Kline, who is chairman of the House Committee on Education and the Workforce, and Foxx, who is chairman of its subcommittee on higher education and workforce training predict that student-loan borrowers can expect their rates to decrease by two percentage points. “It’s a win for students, and a win for taxpayers.”

While the bill passed in the House, its future remains uncertain as it heads to the Senate, and towards threats of veto by the White House.


Caroline Mahony is an editorial intern with Human Events.

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