Cramer Votes to Prevent Student Loan Interest Rate Hike
Washington, D.C. – Today Congressman Kevin Cramer voted in favor of a bill to restore market-based principles to federal student loan interest rates, while preventing the rate for subsidized Stafford loans from doubling on July 1, 2013. The Smarter Solutions for Students Act will implement a market-based interest rate for all federal student loans, with the exception of Perkins loans, based on the 10-year U.S. Treasury Note. The bill passed the House with a vote of 221 to 198.
In 2007, Congressional Democrats led a push to temporarily lower the interest rate for subsidized Stafford loans from 6.8 percent to its current level of 3.4 percent. Before this rate expired in 2012, Republicans agreed on a one-year extension, with the expectation a long-term solution would be crafted during this time. If no action is taken, the rate will double on July 1.
The pending hike in student loan interest rates is directly linked to a broader set of problems resulting from the government’s complete takeover of all federal student loans. When President Obama signed the Health Care and Education Reconciliation Act of 2010, private lenders were removed entirely, and all federal student loans were shifted to a government-run, taxpayer-financed system known as the Direct Loan (DL) program. Under the previous Federal Family Education Loan (FFEL) program, private banks still functioned as the lender for most federal student loans. Now, the DL program uses the federal government as the sole lender, and funds are drawn directly from the U.S. Treasury.
“The Obama administration made a serious error when they removed private banks and lenders like the Bank of North Dakota from the student loan equation, and the impending rate hike for our students is a direct result of this error. The legislation I voted for today allows student loan interest rates to move once again with the free market instead of being bound to political gamesmanship in Washington,” said Cramer. “To keep a good college education in reach for our young people, we need to remove the threat of sudden changes in federal student loans due to Congress’ fixation with arbitrary rates and self-imposed deadlines.”
The Act calculates rates for subsidized and unsubsidized Stafford loans with a formula based on the 10-year Treasury Note plus 2.5 percent, and does the same for graduate student and parent PLUS loans with the 10-year Treasury Note plus 4.5 percent. To provide greater certainty, both rates are capped at 8.5 percent and 10.5 percent, respectively. The Congressional Budget Office (CBO) estimates the Act will save the federal government $995 million over five years, and $3.7 billion over ten years.
The Smarter Solutions for Students Act received bipartisan support in the House Committee on Education and the Workforce, and is additionally supported by both public and private education organizations including the American Association of Community Colleges, American Association of State Colleges and Universities, the National Association of Student Financial Aid Administrators, and the National Association of Independent Colleges and Universities.