The state Legislature narrowly averted a government shut down last week by passing an operating budget. Congress had a fiscally-related deadline too but failed to meet it. The result is that today federal student loan interest rates rose from 3.4 percent to 6.8 percent. That’s double the current rate paid by more than 7 million students nationwide. The jump hits Washington state hard. Last year, 45 percent of the freshmen enrolled in our public higher-education system borrowed for college.
Congress’ failure is disappointing. Times editorials here and here argued for action by Congress. Last year, lawmakers extended the current rate when they could not agree on a more long-term solution. But they failed to do so this time. A nation hamstrung by more than $1 trillion in student loan debt must tackle interest rates.
Congress recessed for the Fourth of July holiday and several members of the state’s delegation, including Sen. Patty Murray and Rep. Suzan DelBene will be at the University of Washington at 10 a.m. this morning to push for the Keep Student Loans Affordable Act of 2013 (S. 1238) which would extend low rates for a year giving Congress time to work on a long-term solution.
This McClatchy story alludes to a plan Congress may agree on by July 10. That’s a week out and here’s why Congress should meet the new deadline. If supporters can get the votes and the mesure passes into law, rates would be reduced retroactively. Then lawmakers could tackle the larger, philsophical views keeping a long-term deal at bay. Earlier this month, Senate Republicans blocked legislation that would have extended the low student loan interest rates. The political sticking point appears to be what to peg the student-loan interest rates to. In an Opinion Northwest post last month, I argued against the Republican plan to tie student loan interest rates to the 10-year Treasury note borrowing rate. I know President Obama was pusing a similar market-driven plan in his 2014 budget proposal but as I wrote then, the devil is in the details. The president included in his Fiscal Year 2014 budget proposal a plan to annually set student loan rates to the Treasury’s cost of borrowing. That rate would be fixed for the life of the loan, giving the student borrower certainty about rates. President Obama’s proposal would also expand the “Pay as You Earn” repayment option so no borrower ends up paying more than 10 percent of his or her discretionary income for student loans.”