Smarter Solutions for Students Act | 05.23.13
As you may recall, last year, Congress voted on whether to raise the subsidized Stafford loan interest rate to 6.8%, or keep it at 3.4%. Congress decided to prolong the decision for another year and keep the subsidized interest rate at 3.4%. However, a year has gone by, and it is once again time for Congress to vote. If Congress fails to come to a consensus by July 1, the interest rate on subsidized loans will automatically double to 6.8%.
In response to this impending decision, several politicians have put forth ideas of what they deem to be the best solution. On May 1, Senator Elizabeth Warren proposed the Bank on Students Loan Fairness Act, which sought to lower the interest rate on subsidized loans to just under 1%, which she described as the equivalent rate for which banks qualify.
Shortly after Senator Warren’s proposal, Congressman John Kline proposed the Smarter Solutions for Students Act, which would use the 10-year treasury bond rate, plus a margin, to determine the rate that students would pay on both subsidized and unsubsidized federal loans. The Smarter Solutions for Students act will use the 10-year Treasury bond rate, which is currently 1.95%, plus a margin of approximately 2.5%, to determine the federal loan interest rate. This bill is very similar to the one proposed by the Obama administration. However, contrary to the Obama administration’s student loan bill, this bill would place a ceiling on the interest rate, ensuring that the federal student loan interest rate could not climb above 8.5%.
If passed today, Congressman Kline’s bill would require students to pay an estimated 4.32% interest rate on their federal student loans, compared to the rate of 6.8% if no action is taken. However, under this bill, these rates are expected to climb to 7.4% by 2017.
The next week and a half will be a crucial time for Congress to come together and make a decision. That being said, what do you think that Congress should do? Do Warren or Kline have the best answer, or would you rather see another form of legislation passed?
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