House Passes Student Loan Interest Rate Legislation; President Threatens Veto

​The U.S. House has passed legislation that would avert a scheduled doubling of certain federal student loan interest rates, effective July 1. But the measure now faces the threat of a presidential veto.

On a largely party line vote of 221 to 198, the House approved a measure that would tie Direct Stafford and PLUS loan interest rates to the rates on 10-year Treasury notes, plus a margin, with a maximum interest rate cap.

Majority Republicans in the House have promoted the measure as a long-term solution to the student loan interest rate issue. Last year, Congress extended for one-year a provision that provided for a fixed interest rate of 3.4 percent on subsidized Direct Stafford loans. Absent legislative action, rates on those loans are scheduled to rise to 6.8 percent July 1.

Although President Obama also proposed a market-based approach to student loan interest rates, the administration says the Republican-backed bill is the “wrong approach" because it would permit rates on existing student loans to be adjusted every year. The administration also objects because the legislation doesn’t extend to existing borrowers repayment terms that would limit payments to a percentage of a borrower’s discretionary income.

The House bill is expected to face opposition in the U.S. Senate, where majority Democrats have proposed several solutions to the interest rate issue, including a two-year extension of the existing 3.4 percent fixed rate.