(CNSNews.com) – President Barack Obama said the GOP House-passed bill that would tie student loan interest rates to the market was not smart and not fair.
“It fails to lock in low rates for students next year,” Obama said Friday in a Rose Garden speech, flanked by college students. “That’s not smart. It eliminates safeguards for lower-income families. That’s not fair. It can actually cost a freshman starting school this year more over the next four years than if we did nothing at all and let the interest rates double on July 1.
“So the House bill isn’t smart. It’s not fair. I’m glad the House is paying attention to it, but they didn’t do it the right way, so I’m asking young people to get involved and make your voices heard once again,” the president said.
“We’ve got to make sure federal student loan rates don’t double on July 1,” Obama said. “Now, the House of Representatives has already passed a student loan bill, and I’m glad they took action. Unfortunately the bill does not meet that test.”
The House bill, if enacted, would provide a long-term fix to student loan rates and take the matter away from annual action by Congress – which for the second straight year will have to act before July 1 to prevent rates from automatically doubling. It would also save $3.7 billion over a decade, according to the Congressional Budget Office.
Obama said that average college students graduate owing about $26,000, then asked for a show of hands from students owing that much.
“Those payments can last for years, even decades, which means young people are putting off buying their first car or their first house, the things that grow our economy and create new jobs,” Obama said. “I’ve said this before – I know this first hand – Michelle and I, we did not finish paying off our student loans until about nine years ago, and our student loans cost more than our mortgage. Right when we wanted to start saving for Sasha and Malia’s education, we’re still paying off our own college education.”
Last week, the House passed legislation that would take student loan rates out of an annual action by Congress and leave it to the free market. The bill’s supporters call it a long-term fix that is deficit neutral and protects the most vulnerable students.
House Speaker John Boehner (R-Ohio) said it was disappointing that with so little time left to fix the problem, the president is holding partisan campaign-style events.
“Last week, the House passed legislation that would prevent student loan rates from doubling and permanently take politics out of the issue,” Boehner said in a statement. “The bill already passed by the House provides a market-based variable interest rate, mirroring what the president proposed in his own budget.
“The differences between the House plan and the president’s are small, and there’s no reason they cannot be overcome quickly. But today, rather than working to resolve the issue, the president resorted to a campaign stunt to try to score political points. If the president is truly unhappy with inaction, the only place to look is the Democratic-run Senate, which has taken no action to prevent rates from doubling,” he said.
In 2007, the Democratic Congress approved and President George W. Bush signed legislation to temporarily phase down the interest rates on subsidized Stafford Loans to undergraduate students from 6.8 percent to 3.4 percent over four years. The law expired in 2012, and the interest rates were set to jump back to 6.8 percent until Congress and Obama agreed to a one-year extension.
The one-year extension means rates are set to reach 6.8 percent on July 1 of this year.
House Education and Workforce Committee Chairman John Kline (R-Minn.) proposed the “Smarter Solutions for Students Act” to move federal student loans to market-based interest rates. The bill excludes the Federal Perkins Loan program that provides low-interest loans to needy students. Republicans contend the legislation is similar to what Obama proposed in his Fiscal Year 2014 budget request.
The bill ties interest rates to the yield on the 10-year Treasury Note instead of setting by an act of Congress; resets student loan interest rates annually as they did before 2006, allowing rates to move with the market and ensuring borrowers can take advantage of lower interest rates when available; protects borrowers in high interest rates environments by including 8.6 percent cap on Stafford Loan interest rates and a 10.5 percent cap on PLUS loans. PLUS loans are direct loans from the Department of Education; and is designed to prevent future uncertainty about whether Congress is going to change the rates.
If passed, the bill would save the federal government $995 million over five years and $3.7 billion over 10 years, according to the Congressional Budget Office.