On June 18, 2013 House Republican
Leadership held a press conference to proudly highlight the passage of their bill to solve the problem of the doubling of student collage loan rates scheduled to take effect July 1, 2013. Eric Cantor said it echoes the President's
own plan and that now it is time for the Senate to act.
http://majorityleader.gov/blog/2013/06/the-house-has-acted-to-avoid-doubling-of-student-loan-rates-its-time-for-the-senate-to-act.html
One of my faves - unemployed, student-loan-burdened millenials who won't move out
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One of my faves - unemployed, student-loan-burdened millenials who won't move out by amerainey
For an example, look at what the GOP plan does for Stafford loans. The current fixed rate for this student loan
is 3.4% and it is scheduled to double in July to 6.8%. The House GOP's Smarter Solutions for Students Act (SSSA) would end the fixed
rate and calculate a variable rate at 2.5% points over the 10 year Treasury
Bill rates, with a cap of 8.5% on Stafford Loans. The average 10 year Treasury bill rate so far this month is 2.66%, so the current Stafford Loan rate would
be 5.16%.
While the 5.16% today is better than the 6.8% rate beginning in
a few weeks, the variable rate cap of 8.5% is 1.7% higher than the fixed rate
would be. So Congratulations to the House GOP for passing a plan that would
both lower and raise student loan rates at the same time. If this isn't
cynical enough for you, add the SSSA's current student loan rate of 5.16% today
with the cap rate of 8.5% and then divide by two. This gives us the variable
rates mid-range of 6.83%, nearly identical to the higher fixed rate as of
July. So for bankers this is a revenue neutral proposal over a range of
years while current college students get only a 52% rate increase as of
July. For future college students the rate can more than double the
current 3.4% fixed rate.
A look at the other provisions of the bill reveal similar findings. This could be a bill written by the student loan industry to squeeze more out of students without appearing to be quite so greedy.
On the same day that GOP Republican Leaders pushed the Senate to act on this cynical bill we learned in sworn affidavits that employees at Bank of America were made to lie to customers so the company could forclose on homeowners rather than grant loan modifications. The banking industry is out of control and acting with criminal intent. They should not be rewarded at the expense of our students struggling to better themselves through a college education. It is the students, not the bankers who we should be rewarding.
Below is an analysis that (also cynically) does not assess the
financial impact if the current 3.4% rate is allowed to stay the same.
H.R. 1911, Smarter Solutions for Students Act
cost estimate
may 20, 2013
read complete
document (pdf, 28 kb)
As ordered reported by the House Committee on Education and the Workforce
on May 16, 2013
H.R. 1911 would change the interest rates for all new federal
loans to students and parents made on or after July 1, 2013, from a fixed
interest rate set in statute to a variable interest rate, adjusted annually.
Under the bill, interest rates for all new subsidized and unsubsidized student
loans would be based on the interest rate on a 10-year Treasury note plus 2.5
percentage points, with a cap of 8.5 percent. (Borrowers pay no interest on
subsidized loans while enrolled in school or during other deferment periods but
are responsible for interest at all times on unsubsidized loans.) The interest
rate for all new GradPLUS and parent loans would be based on the interest rate
on a 10-year Treasury note plus 4.5 percentage points, with a cap of 10.5
percent. The bill also would eliminate the cap on the interest rate on all new
consolidation loans (multiple loans for a single borrower combined into one
loan) originated on or after July 1, 2013.
Under current law, all subsidized and unsubsidized loans
originated on or after July 1, 2013, will have a fixed interest rate of 6.8
percent, and all GradPLUS and parent loans will have a fixed rate of 7.9
percent. In addition, the interest rate on all consolidation loans is capped at
8.25 percent.
CBO estimates that enacting H.R. 1911 would reduce direct
spending by about $1.0 billion over the 2013-2018 period and by $3.7 billion
over the 2013-2023 period. Enacting the bill would not affect revenues.
Pay-as-you-go procedures apply because enacting the legislation would affect
direct spending. Implementing the bill would not have a significant impact on
spending subject to appropriation.
