Once again, the Senate failed to pass any kind of bill that would prevent the rates on student loans from doubling later this summer. On Thursday, it was unable to reach an agreement on either of the two legislative bills designed to prevent Stafford student loan rates from rising two times the rate it is now. And there are only two weeks left before the deadline expires. This has many wondering why they waited so long, especially when they’ve been down this proverbial road before. More importantly, will they finally find a long term solution?
If they’re unable to decide on one of the two proposals – one from the Democrats and one from the Republicans – we’ll likely yet another showdown ahead of the deadline. Despite both sides agreeing that interest rates should not go up, they’ve been unable to find any other “middle ground” and if that happens, it would deepen the estimated $1 trillion student loan debt.
The pubs are hoping to establish “market-based” rates that would be linked to Treasury notes while the Dems have a bill that would extend the current low rates for another twenty four months. Both failed to gain the other side’s support. Either needs 60 votes to advance. Senator Patty Murray (D-Wash) said,
What we put forward today was a perfectly sensible solution to help address the problem.
This bill, she explained, would have protected the 7 million college students from seeing their funding sources float out of their reach. She called the Democrat’s bill a “no brainer” but that the Republicans didn’t have enough foresight to see it.
Student Loans Standoff
Meanwhile, the House has already approved new legislation that looks a lot like the Senate GOP bill; however, the president, in what’s now a predicted behavior, refuses to consider it. This bill would create market based rates, an argument Republicans have made for some time now. The Dems say even with rate caps, which are part of the proposal, the costs for students would be even more than a doubling of the interest rates. For their part, the Republicans say the Dem’s efforts of a two year freeze of the loan rates at 3.4 percent would equate to little more than borrowers having to face another interest rate battle two years – instead of one.
So what happens if they can’t agree and the rates expire? In short, it would affect the more than 7 million student loan borrowers and would return the loan rates to numbers not seen since 2008. For students who max out their student loans every year, the rate shift would mean this year’s loans will cost more than $1,000 than last. Some say that wouldn’t necessarily be a deterrent. Evidence is found in the consumer credit sector. The credit jump of more than $118 billion is due to student loan increases and auto sales.
Bringing Debt Down
Of course, all of us are working on brining our credit card debt down, but we’re also buying new cars and taking out student loans. This week, the Federal Reserve reported that overall consumer credit for April increased $11.1 billion. This is a five percent increase and follows a revised $8.37 billion increase in March. Some experts expected the credit balances to jump $12 billion.
This suggests many have faith that Congress will find a solution to the interest rate brouhaha. It also suggests we’re more hopeful the jobs market and the economy as a whole. This, of course, is the biggest predictor of whether an economy is making a true recovery. Revolving credit, which includes mostly credit card debt, is up 1 percent. It doesn’t entirely wipe out March’s drop of $906.4 million, but it’s a step in the right direction. This too could explain why some are more confident and willing to take out student loans.
Student loans are considered non revolving and they rose 6 percent between April and May. Automobile loans are categorized this way, too. The total increase is $10.3 billion. The total consumer credit numbers – which equate to $2.82 trillion – is indicative of a new high.
The Warren Factor
U.S. Sen. Elizabeth Warren, in her true assertive mannerisms, along with Congressman John Tierney, have announced their plans to meet with college students and professors in order to explain the deadline and what happens if Congress doesn’t act.
One of those bills that were introduced was done so by Tierney and Warren. Their plan allows students to pay the same interest to the government that banks already pay. They will be explaining this on Monday morning at Northeastern University.
Senate Majority Leader Harry Reid waxed philosophical with reporters late Thursday and said,
I cannot understand why we’re having a problem with this.
Senator Lamar Alexander, the top Republican on the Senate’s education panel agreed,
If we can’t agree on this, we can’t agree on anything.
He then called it a “manufactured crisis.”
What’s most interesting in all of this is that both President Obama and the Republicans have near-mirroring plans. Still, he says he will veto any Republican driven legislation. It’s almost as though he’s on autopilot, said one person close to the debates,
As soon as the word ‘Republican’ is mumbled and before it’s even out there, Obama kicks into autopilot and says ‘VETO!’
No More Revisiting Legislation
And at least one member of the House Education and the Workforce Committee has had enough and says he will not “revisit legislation”. Rep. John Kline (R- Minn.) said that it’s up to Obama to negotiate a deal or get the blame for higher rates.
It leaves us with one body in Congress – the House – having passed legislation…that would provide the long-term fix to the student loan interest rate problem,
Kline told reporters.
So what are your thoughts? Is this going to be another Band-Aid or a sure enough solution that won’t require revisiting it this time next year? Let us know what you think – leave us a comment or join the conversation on Facebook.
Similar Personal Finance News
- Things You Should Know About Payday Loans
- How The Credit CARD Act Fares 3 Years Later
- Credit Unions Next Major Lenders To Be
- Experts Predict 2012 Credit Card Boom
- Platinum Trust Card Not To Be Trusted Says FTC
- 3 Years In, Credit CARD Act Working
- Discover Partners With DoSomething.org