Don’t Punish Student Borrowers
By THE EDITORIAL BOARD, NYTIMES
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With the student debt crisis already hurting the economy and hobbling the young, the last thing the country needs is a federal policy that makes college even more costly. But that’s what the country got earlier this week when Congress allowed the interest rate on the subsidized federal loans to double from 3.4 percent to 6.8 percent.

If this increase is allowed to stand, more than seven million mainly low- and middle-income borrowers who begin college in the fall will pay an average of about $1,000 more per loan. That would mean about $4,000 more in debt for students who finish in four years, with the burden falling on people who could least afford it.

Congress could avoid this debacle by passing Democratic provisions pending in both the House and Senate that would extend the lower rate for one year, giving lawmakers a chance to restructure the complex student loan system. But, incredibly, some Republicans are supporting proposals that would cost students and their families even more than the new doubled rate — using the proceeds for deficit reduction.

Those who want to keep the rates affordable understand that college educations benefit the work force and the country as a whole. Those who would increase the burden on borrowers see a college education as an asset that benefits the individual alone. That’s a dangerous idea, at a time when this country is steadily losing ground to its increasingly better prepared competitors abroad.

Bills introduced by Democrats would stop the increase immediately and would pay for the lower rate — which costs about $4.25 billion — by closing a loophole in the law governing I.R.A.’s and 401(k)’s that are left to beneficiaries when the account holders die. Once the interest rate increase is forestalled, lawmakers could turn to the long overdue task of revamping laws on student loans and student aid that are arbitrary and far too complex.

Earlier this year, the Institute for College Access and Success, a nonpartisan policy group, issued an extensive set of recommendations for reforming the loan system to better serve both taxpayers and borrowers. The government could tie those rates to its borrowing costs, keeping the rate low while the student is in school. When the loan enters repayment, the rates could be allowed to rise by a set amount but would never exceed a cap, which would protect families from interest spikes. Congress should have been working on this problem since last summer, when it extended the expiring 3.4 percent rate for a year. Now that the day of reckoning has arrived, lawmakers should give students a reprieve and get to work on remaking the student loan system.

GOP Presses Democrats for Student Loan Changes

Deadline Near With No Deal on Loan Rates for Students
By JONATHAN WEISMAN, NYTIMES
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WASHINGTON — With only five days before interest rates on student loans are scheduled to double, the Senate majority leader rejected a proposed bipartisan solution that has now scrambled alliances and muddied political attacks for both sides.

Barring a last-minute breakthrough, 7.4 million university students will see rates on their federal Stafford loans jump to 6.8 percent from 3.4 percent on July 1.

“I hope that people start looking at truly compromising and working on something that fixes it,” said Senator Joe Manchin III of West Virginia, whose conciliatory proposal was shot down Wednesday by fellow Democrats, including Majority Leader Harry Reid. “You’ve got rates going up to 6.8 percent. That’s unfathomable, and it doesn’t have to happen.”

For weeks, Congressional Democrats have been anticipating that the standoff over student loan interest rates would be a political boon. In college student newspaper advertisements, on social media platforms and in town hall meetings, Democratic lawmakers cast themselves as the saviors of low, subsidized lending rates, battling Republicans intent on subjecting college loans to the whims of the financial markets. They banked on Republicans caving and extending the fixed, 3.4 percent rate for at least a year, just as they did a year ago when a similar deadline loomed.

But instead House Republicans passed their own student loan bill in May, then went on the offense, saying the Democrats were the ones who have failed to act responsibly. President Obama complicated the politics with his own student loan proposal, which was somewhat similar to the Republican plan. The issue was buried beneath bigger news events: an immigration battle in the Senate, scandals swirling in the House, government eavesdropping revelations and a flurry of significant Supreme Court decisions.

Then with the deadline looming, Mr. Obama abandoned the bully pulpit and headed to Africa.

All that has left Democrats divided and Republicans crowing.

“We could and should get this done for the students of our country,” Representative Eric Cantor of Virginia, the House majority leader, said Wednesday.

A glimmer of hope peeked through Washington’s cloudy skies Wednesday when five senators — three Republicans; one independent who leans Democratic, Angus King of Maine; and Mr. Manchin — unveiled what they billed as a breakthrough.

The proposal would fix all new student loans to the 10-year U.S. Treasury bond rate, plus 1.85 percentage points. Graduate student loans would be 3.4 percentage points above the 10-year rate.

But a conservative Democrat and a Maine independent proved to have no sway with most Democrats, who protested that the proposal lacked a hard cap on interest rates to protect against market fluctuations. They also objected to interest rates that would earn the government $1 billion over 10 years. A spokesman for Mr. Reid quickly shot down rumors that a deal was at hand.

“There’s not been a willingness by our Republican colleagues yet to focus on a real cap,” said Senator Debbie Stabenow, Democrat of Michigan and one of the negotiators trying to reach a deal. “And over time what we’ve seen in the proposals actually goes higher than doubling the rates.”

Senators Tom Harkin of Iowa and Jack Reed of Rhode Island, both Democrats, will rush new legislation to the Senate on Thursday to freeze the 3.4-percent rate for one year while lawmakers try to reach a long-term agreement in a broader higher education law. But even the bill’s authors acknowledge it almost certainly will not be able to get a vote before Congress leaves for a weeklong July Fourth break.

Instead, the legislation would make the fixed rate retroactive to July 1. Since most university students do not sign loan documents until early August, “we have a little wiggle room, but not a lot,” said a Senate Democratic aide involved in the drafting.

Democratic leaders, once convinced they could win a clear victory over Republicans, were reduced Wednesday to arguing that allowing interest rates to double would be better than fixing loans to fluctuating market rates.

“I don’t know,” Senator Richard J. Durbin of Illinois, the No. 2 Democrat, said with a shrug. “Student groups said: ‘Let it double. We’d rather see it double to 6.8 than the alternatives we’ve heard.’ ”

Playing Politics With Student Debt
By LAMAR ALEXANDER, TOM COBURN and RICHARD BURR
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WASHINGTON — THIS summer, more than nine million undergraduates will take out an average of $6,700 each in federal loans to pay for college next year. They will borrow, on average, $24,803 to earn their degrees. While this continues to be one of the smartest investments they will ever make, Congress should take one step toward making it an even smarter one.

We have introduced a proposal that would get rid of the confusing and arbitrary way interest rates are determined on federal student loans, and instead allow rates to be set by the market. We commend President Obama for introducing a similar proposal in his budget, and the House of Representatives for recently passing similar legislation, on a bipartisan basis, that offers a long-term, market-based solution.

But we are worried that Senate Democrats, who could vote on the issue as early as this week, will oppose a permanent solution for 100 percent of loans and instead will merely extend the existing, arbitrary rate for a minority of loans, and for just two years — a politically easy move that will only hurt students in the long run.

Over the past four years, the Federal Reserve has kept interest rates at record-low levels, allowing banks to borrow money from the federal government at nearly zero percent interest and, in turn, offer low rates to individuals borrowing money for the purchase of a home or a car or to start a business.

But if you’re a college student who has taken out a federal loan during that time, you’ve seen no benefit at all from the dirt-cheap borrowing costs. Instead, your interest rate was set by Congress, which temporarily set some rates at 3.4 percent for low-income students but left most rates at either 6.8 percent or 7.9 percent.

In other words, you could borrow money to buy a used car to drive yourself to college and pay about 3 percent interest over five years, while at the same time you could be paying nearly 7 or 8 percent interest on the cost of your education.

That is, except on your federally subsidized Stafford loans. Last year Congress extended a temporary provision, first passed in 2007, to lower the 6.8 percent interest rate on newly issued Stafford loans for low-income undergraduate borrowers to 3.4 percent, for one year. The government pays the interest for these loans while the borrower is in school.

Congress extended the interest rates for a year not because it was good policy, or because 3.4 percent is some ideal rate for loans, but largely because student debt had become a political issue in the presidential campaign. In the end, the one-year extension cost taxpayers nearly $6 billion, but saved a mere $9 a month in future repayments for the 40 percent of student borrowers who receive subsidized Stafford loans.

Congress is now approaching the end of that temporary “fix.” On July 1, those rates will return to 6.8 percent — which is why it is important for the Senate to make the right fix, right now.

Student debt shouldn’t be grist for the political mill. Congress must provide certainty and stability to student borrowers.

Our legislation would tie all federal student-loan interest rates to the 10-year Treasury rate (currently 1.75 percent), plus 3 percentage points to cover the costs of collections, defaults and other risk factors. That would benefit students and families by cutting rates on almost all federal student loans to a little under 5 percent for the coming school year.

Under our proposal, interest rates will remain the same over the lifetime of a loan, but the rate on a loan taken out in 2013 might differ from one taken out in 2014, because market rates vary.

One big advantage of our proposal is consistency: the confusion over differing rates on Stafford loans and unsubsidized federal PLUS loans would end, since one rate formula would be used for all federal education loans.

Our plan would also protect students by using the existing income-based repayment program, which allows borrowers to reduce their monthly payments based on a capped percentage of their discretionary income and ultimately have those loans forgiven after a period of time. This is a better solution than capping future increases in interest rates, and one that the president’s own budget proposal endorses.

Taxpayers would be protected, too. When the economy recovers and interest rates return to historical norms, taxpayers will no longer be subsidizing artificially low interest rates.

Our proposal has some differences from the president’s plan and the House-passed bill — for example, the president proposes three different interest rates for different types of loans, while ours has just one interest rate for all direct federal student loans, and the House bill applies a variable interest rate that resets each year, while our interest rate remains the same for the life of the loan.

But all of us embrace the same idea: we should stop playing politics with student loan debt and move to a simpler and fairer system, one that will immediately lower borrowing costs for all students while protecting taxpayers and providing certainty for the future. We hope Senate Democrats will agree.

Lamar Alexander, Tom Coburn and Richard Burr are Republican senators from Tennessee, Oklahoma and North Carolina, respectively.