The House is likely to vote this week on a plan that would keep student loan interest rates from doubling on July 1, but some Democrats say that plan is actually worse than doing nothing. Washington bureau reporter Michael Scotto filed the following report.
WASHINGTON, D.C. — Politicians are once again scrambling to stop interest rates on federally subsidized student loans from doubling to 6.8 percent. That's because an election year deal that kept rates at 3.4 percent is set to expire at the end of June.
“We in the Congress should be doing more to keep it affordable, not less,” said New York Rep. Hakeem Jeffries.
But like most things in Washington, both sides disagree over how to stop the rate hike.
The House Republican plan, to be voted on this week, would take government out of the rate-setting process and peg student loan interest rates to the government borrowing rate, plus 2.5 percent.
“What it will do is give some certainty to students. They won't have to rely on politicians setting the rate,” said North Carolina Rep. Virginia Foxx.
President Barack Obama has also proposed a market based plan. His would set the rate based on the government borrowing rate, plus about 1 percent. But according the a White House spokesperson, the president is skeptical of the Republican plan and fears it would push rates too high. It's a sentiment shared by some House Democrats.
“Their bill will make a bad situation worse for millions and millions of students all across America,” Jeffries said.
Jeffries wants to freeze rates at 3.4 percent for one more year so Congress can work out a long-term solution. Democrats in the Senate have a similar plan that may be voted on as an amendment to the farm bill.
In recent years, student loan debt has become a significant problem. Currently, it is valued at about $1 trillion, making it the second largest source of U.S. household debt behind mortgages.
According to the Federal Reserve Bank of New York, the average loan balance among 25-year-olds with student debt is just over $20,000, up from less than $11,000 about a decade ago. Those are numbers politicians will likely consider as they try to reach a deal before the end of June.