The problem has been looming over Americans for awhile but, without any changes the interest rate on federally backed Stafford loans will, on schedule, double this summer. College students have sent petitions to Congress but elected officials haven’t solved the problem yet.
This is starting to become important to the Obama administration. According to an article by Tamar Lewin in the New York Times:
President Obama begins an all-out push on Friday to get Congress to extend the low interest rate on federal student loans, White House officials said, an effort that is likely to become a heated battle along party lines. If Congress fails to act, the interest rate on the loans, which are taken out by nearly eight million students each year, will double on July 1, to 6.8 percent.
White House officials said the president was planning a sustained effort through the spring: On Friday, Education Secretary Arne Duncan will discuss the issue at a White House briefing, and on Saturday in his weekly address, the president will call on Congress to pass legislation preventing the rate hike.
The current interest rate (and the coming crisis) comes from a 2007 act, the College Cost Reduction and Access Act, which, among other things, reduced interest rates every year to its current relatively low amount. The law also specified that the rate would spike back up to 6.8 percent in July. According to Lewin, 77 Republicans voted for the law.
Rep. John Kline of Minnesota, a Republican, serves as chairman of the House Committee on Education and the Workforce. He argued that it’s appropriate to bring the rate back up because,
We must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers. I have serious concerns about any proposal that simply kicks the can down the road and creates more uncertainty in the long run — which is what put us in this situation in the first place.
As I wrote about this rate hike last month, Kline is being a little misleading. Taxpayers have to deal with this under any scenario. This is just a matter of whether we spread the bill, some $6 billion according to the Congressional Budget Office, over the entire population or stick the full cost on struggling college students and graduates.