House Panel Approves Student Loan Interest Rate Fix

​With a potential doubling of federal student loan interest rates looming in less than two months, a U.S. House committee has approved legislation to let the market, rather than Congress, set student loan interest rates in the future.

On a 24-13 vote, the House Committee on Education and the Workforce reported to the legislation to the full House. The legislation would tie student loan interest rates to the 10-year Treasury note, plus a margin, and protect borrowers by capping maximum interest rates, as follows:

  • Subsidized and unsubsidized Direct Stafford loan rates would be based on the 10-year Treasury note rate, plus 2.5 percent, resulting in a rate of approximately 4.3 percent, based on the current 10-year note rate. Rates would be adjusted annually, but could never exceed 8.5 percent.
  • Direct PLUS loan rates would be based on the 10-year Treasury note rate, plus 4.5 percent, resulting in a rate of approximately 6.3 percent, based on the current 10-year note rate. Rates would be adjusted annually, but could never exceed 10.5 percent.

Committee Chair John Kline, R-Minn., said the measure “gets politicians out of the business of setting student loan interest rates every year,” and it is similar to a proposal included by the Obama administration in its 2014 budget proposal.

Citing projected increases in interest rates in the future, ranking Democrat George Miller, of California, criticized the proposal as a “bait and switch” that “lures students in with an initial lower rate only to charge them the higher rates in the long term once they graduate, when it actually matters for repayment.”

Miller and the panel’s Democrats proposed an alternative measure that would extend the current fixed 3.4 percent rates on Stafford loans for two additional years.

Absent legislative action, that rate is scheduled to double to 6.8 percent, effective July 1.

Despite Miller’s complaints, two Democrats joined the majority Republicans on the committee in supporting the market-based rates proposal.