Federal student loan update: Still waiting on Washington

June 14, 2012 by LendKey Staff

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Around the country, students preparing for the Fall 2012 semester are concerned about the rate for their federal Subsidized Stafford loan.

It is currently set to double to 6.8% come July 1, and this is making students nervous.


Students are waiting on an answer……

It’s also making politicians on capitol hill nervous during an election year when the 18-29 year old demographic will play a crucial role. This younger college attending generation would be most impacted by the rate increase and may be driven to the polls to voice their opinion. No politician wants to be the target of an aggressive youth vote attempting to dislodge them from office, so both sides of the aisle have attempted to create appealing legislation. Thus far, no plan has been approved. While a politician would love to get out in front of this issue with a bill that can score points with the dynamic youth vote, no one knows how to pay for it since our government is already far into other costly obligations.

From Claire Tan of The California Aggie:

“The rejected GOP and Democratic proposals, respectively named the Interest Rate Reduction Act (H.R. 4628) and the Stop the Student Loan Interest Rate Hike Act of 2012 (S. 2343), would have pushed the doubling to July 1, 2013 at a cost of $6 billion each. However, each party was split against each other’s method of paying for the bill.”

During the pre-financial melt down days, no one in Washington would even notice an extra $6 billion, but today, it’s a different story. In 2010, Washington was in gridlock over a 5.7 billion dollar funding gap for the Pell grant program, the flagship federal need based grant program that is now awarded to over 8 million students each year. It took many additional months to iron out a Pell grant budget that traditionally only took a few weeks for legislatures to determine. Eventually, the Pell grant program was preserved, but here we are in a new academic year stuck on funding requirements for Subsidized Stafford loans.

So what is going to happen?

After some grandstanding, politicians will symbolically “come together” with an agreement, but no one is exactly sure how this agreement will go down.

From David Lightman and William Douglas at The Olympian:

Both sides privately think that the dispute will be settled this month. Senate Majority Leader Harry Reid, D-Nev., offered a plan last week that raises money with some changes in pension policy, and Republicans didn’t instantly dismiss the idea. At the same time, the two sides keep finger-pointing, knowing that the stakes are huge for whoever emerges as the champion of college students, because the 18- to 29-year-old vote is considered crucial – and volatile.

Interestingly, a new plan was floated by U.S. Senators Tom Coburn, M.D. (R-OK) and Richard Burr (R-NC) just this week.

The “Comprehensive Student Loan Protection Act,” aims to “…provide a long-term fix to the interest rate on subsidized student loans by changing the structure for all new federal student loans first disbursed after July 1, 2012, to become a fixed-variable rate. It requires the applicable rate of interest for student loans to be equal to the bond equivalent rate of 10-year Treasury bills auctioned at final auction prior to June 1st plus 3 percent. Lastly, it directs any remaining savings left over to be sent to the Treasury for the purpose of debt reduction.”

This sounds like a plan that may work, but it has a long way to go before it could pass.

However, while debate continues, the subsidized Stafford loan rate is set to double come this July unless a new bill is passed. Stay tuned politicos, this may get even more interesting.

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