With the interest rate of Federal Stafford Loans set to double from their current rate of 3.4% to 6.8%, the Senate voted on two pieces of legislation aimed at avoiding this rate hike. The Democrats proposed a plan that called for keeping the interest rate at its current 3.4% for the next two years. It failed. The Republicans proposed a plan that would set the interest rate on these student loans at the market rate of 10-year US Treasury Bonds plus 3%. It failed.
“I cannot understand why we’re have a problem with this,” Senate Majority Leader Harry Reid told reporters after the vote.
The especially troubling part of this failure of the Senate is the fact that this is one issue in which both parties agree in principle. Though their approaches are slightly different, they are really not that far away from what should be an easy compromise. Lets look at the next year as an example. The Democrats want to set the rate at 3.4%. The Republicans plan would set the rate at about 4.5% (The current 10 year treasury note is just over 2% and they want to add 2.5% to that number). If the two parties were to just meet in the middle, the rate would be set at just under 4% for the next year. Instead, because both plans failed today, the rate will increase to 6.8%.
Make no mistake, the interest rate debate is only a minor part of a much larger student loan debt problem. If the Senate cannot pass a bill when they for the most part agree, how are they going to address the issues of the millions in default? How are they going to fix bankruptcy as it concerns student loans? How are they going to make college affordable again?
In the words of Senator Lamar Alexander (R-Tenn.), “If we can’t agree on this, we can’t agree on anything.”
The Bottom Line
Student Loans are a trillion dollar problem in this county. The Federal government is making billions on these loans. For one particular type of federal loan, Democrats and Republicans actually agree: the rates are too high. The end result: July 1st the rates on these loans will double.
What do you think should happen with these interest rates? Who is to blame?