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October 7, 2015

Senate Democrats Hamstrung by Obama on Student Loans

Senate Democrats are trying to pass a two-year extension of current law on student loan rates, but they have a problem: The Obama administration issued a proposal as part of its 2014 budget request that would change current law and is closer to a plan from Senate Republicans than one from Democrats.

The result? A legislative mess, teetering toward a July 1 deadline when subsidized Stafford loan rates will double.

Of course, a solution might be closer if everyone engaging in the debate it were honest and transparent about their positions and motivations. This being Washington, they’re not, and thus another manufactured crisis appears to have been born. So without further ado, a primer on where the issue stands.

Points of agreement: The White House, Senate Republicans and congressional Democrats seem to be united around one thing: The House Republican plan is unpalatable. The biggest issue with the House GOP plan, expressed most clearly by the Obama administration’s formal veto threat, is that it does not lock in rates for the life of the loan.

Like the White House and Senate GOP plans, the House Republican offering is market-based, but because rates don’t lock, a student hypothetically could take out a loan his freshman year at a 3 percent rate, take out four loans for each year of college accordingly, and then pay 9 percent on all four loans by senior year, if rates go up.

Meanwhile, the White House and Senate Republicans agree that student loan rates should be pegged to the market, though their formulas for determining rates vary slightly. The White House proposed a formula that would provide three different rates for subsidized Stafford loans, unsubsidized Stafford loans and PLUS loans for graduate students. Of the three kinds loans, only subsidized Stafford loans are need-based, though all are federally guaranteed.

The White House formula is the 10-year Treasury note rate +.93 points for subsidized Stafford loans, +2.93 points for unsubsidized Stafford loans and +3.93 points for PLUS loans. The Senate GOP formula is the 10-year Treasury note rate +3 points for all three kinds of loans. Neither the White House nor Senate Republicans impose a student loan rate cap, so in the event of a stronger economy, student loan rates would go up, potentially dramatically. Instead, these plans rely on a program called the Income-Based Repayment Program, which allows students to reduce their monthly payments if they cannot afford them. The drawback to such a program is that students could end up paying more interest over the life of their loans because they’re making lower payments over a longer period of time.

Senate Democratic leaders are, at this point, pretty apprehensive about coming out and saying they don’t like the Obama plan. But the truth is, they don’t.

Senate Majority Whip Richard J. Durbin, D-Ill., told WGDB this week that he didn’t support the White House plan. Of course, he said this in a hallway and not at a press conference last week where the four Senate Democratic leaders knocked the “Republican plan” for student loans without differentiating between the House and the Senate. Sen. Charles E. Schumer, D-N.Y., said the day before the media event that the student loan issue is a messaging winner for Democrats.

Floor Battle Thursday: This serves as the backdrop for a heated floor debate Thursday between Republican Richard M. Burr of North Carolina and Democrat Elizabeth Warren of Massachusetts. Warren came to the floor to offer a unanimous consent request to move to the Senate Democratic bill (of note, Warren has her own plan: offer them the Federal Reserve’s discount rate offered to big banks, currently, .75%, to students). Burr objected. Then in a twist, he offered the White House plan. Warren objected.

“This will give Congress time to develop a long-term plan to address the rising burden of student loan debt, a long-term plan that keeps interest rates low and that addresses rising college costs,” Warren said on the floor, of the Senate Democratic extension. She noted that the GOP plan would produce billions in profits “on the backs of students,” which is logic that likely would apply to a similar White House plan.

After the Burr-Warren exchange, Reid spokesman Adam Jentleson issued the following characterization of what had happened: “Senator Burr then asked consent to take up and pass a bill which he described as the President’s proposal, but we can’t verify that since we didn’t see the legislation before Senator Burr tried to vote on it.”

When asked whether Senate Democrats would support opening debate on the White House plan if they could “verify” it was in fact the bill being offered, Jentleson referred WGDB back to his original statement.

What’s next: Unclear. But with two weeks left in this work period before the July Fourth recess and the student loan rate set to double, Senate Democrats may have to finally work something out with the White House. Until then, Republicans on the Hill are getting to beat up on their Democratic colleagues because the Obama administration’s position is the giant elephant in the room.


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  1. zoobee

    June 17, 2013
    11:22 a.m.

    “Like the White House and Senate GOP plans, the House Republican offering is market-based, but because rates don’t lock, a student hypothetically could take out a loan his freshman year at a 3 percent rate, take out four loans for each year of college accordingly, and then pay 9 percent on all four loans by senior year, if rates go up.”

    Incorrect. The GOP plan you are referencing also caps interest rates at 8.5%. Therefore, it could not go up to 9%.

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