US House and Senate move legislation to stop student loan interest rate increase

Last week, the US House and Senate began to move legislation to stop the scheduled increase to the undergraduate student loan interest rate from 3.4 percent to 6.8 percent on July 1.  The interest rate had been scheduled to increase last year, but Congress passed a stop-gap bill in 2012 which delayed the doubling for one year, paying for the delay by cutting existing student loan subsidies.

The US House Education and Workforce Committee on May 16 approved H.R. 1911, the Smarter Solutions for Students Act. The measure would create a single interest rate for both subsidized and unsubsidized loans, with the rate set each year by adding 2.5 percent to the 10-year Treasury bond rate. The interest rate on PLUS loans would be set by adding 4.5 percent to the 10-year Treasury bond rate.

In the Senate, Democrats on May 15 introduced an alternative bill, S.953, the Student Loan Affordability Act of 2013, which would delay the interest rate increase on undergraduate student loans for two years.  The cost for this delay would be paid for by closing three tax “loopholes”: one affecting tax-deferred IRA and 401(k) accounts, one concerning non-U.S. companies, and the third directed at the oil industry.

On May 15, a group of 15 higher education associations, including the Association of American Universities and the Association of Public and Land grant Universities, sent a letter to leaders of the House Education and the Workforce Committee thanking them for introducing H.R. 1911. The associations expressed support for the bill’s inclusion of a market interest rate tied to economic conditions, with an overall cap to limit risk to student borrowers, as well as the fact that the bill would not eliminate or reduce existing benefits, such as the in-school interest exemption. The letter raised concern, however, that graduate students might face a disproportionate increase in costs under the proposal.

On May 17, a group of 13 higher education associations, including AAU, sent a similar letter to four Senate Democratic leaders expressing appreciation for the introduction of S. 953. The letter recognized that the Senate bill would prevent an increase in loan rates for two years while Congress examines the loan programs in the Higher Education Act reauthorization, without calling for reducing current educational benefits.