Pegging Student Loans to Market Interest Rates Is ‘Really Stunning,’ Pelosi Says

May 28, 2013 - 9:58 AM

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House Minority Leader Nancy Pelosi of California speaks during a news conference on Capitol Hill in Washington, Thursday, May 23, 2013. (AP Photo/Charles Dharapak)

(CNSNews.com) – Democrats are using a Republican student loan bill, passed by the House last week, to score points with debt-laden students.

The GOP “Smarter Solutions for Students Act” ties all federal student loans (except Perkins loans) to prevailing market interest rates.

“This is really stunning,” House Democratic leader Nancy Pelosi said last Thursday, shortly before the bill passed. She said the bill should be called the “Make College More Expensive Act.”

“It clearly demonstrates how damaging this is to college affordability, to those who want to go to college, to their families who want to help them to do so.”

Pelosi said the Republican bill would make things “worse.”

In 2007, the Democrat-led Congress approved legislation that lowered the interest rate on subsidized Stafford Loans to 3.4 percent from 6.8 percent for a four-year period. The law expired in 2012, but Congress approved a one-year extension, which expires in July.

The House bill, introduced by Rep. John Kline (R-Minn.), chairman of the House Education and the Workforce Committee, resets student loan interest rates once a year, allowing rates to move in line with the free market. It protects borrowers when interest rates rise by setting an 8.5 percent cap on Stafford Loan interest rates and a 10.5 percent cap on PLUS loans.

“It’s time to move away from a system that allows Washington politicians to use student loan interest rates as bargaining chips, creating uncertainty and confusion for borrowers,” says a fact sheet on Kline’s bill. “By taking politicians out of the interest rate equation, the Smarter Solutions for Students Act will strengthen federal student loan programs and serve the best interests of both borrowers and taxpayers.”

Kline says his bill prevents future uncertainty about whether Congress is going to act in time to change the interest rate.

But Pelosi said the Republican bill would allow student loan rates to rise beyond 6.8 percent, “without a reasonable cap.”

“And so it’s just wrong,” she said. She urged Americans to pay attention to the debate leading up to the vote, “because this is a kitchen table issue for the American people.”

The bill passed the House on a 224-195 vote, and it now moves to the Democrat-controlled Senate, which is considering its own bill.

The “Bank on Students Loan Fairness Act,” introduced by Sen. Elizabeth Warren (D-Mass.), would set interest rates for student loans at the same level as government loans to banks. Through the Federal Reserve discount window, a bank can get a loan at a rate of about 0.75 percent.