Unless Congress takes action before July 1 on one of a grocery list of "solutions," interest rates on federally subsidized student loans are going to double, from 3.4 percent to 6.8 percent, hammering more than 400,000 students in Florida and as many as 7 million nationwide.
Such an increase would mean a Florida student taking out the maximum Stafford student loan of $23,000 would pay an additional $11,000 of interest over the 20 year repayment of the loan.
Fifty-one percent of all students enrolled in four-year Florida colleges and universities will face a loan debt when they leave school, according to the Project on Student Debt. The average Florida student loan debt is $23,054, placing the state 33rd on the states' debt list.
"I haven't found a single member of Congress who wants to just let this interest-rate doubling happen," Gordon L. Puckett, Washington political consultant, told Sunshine State News. "It's just that consensus is missing, especially in the Senate."
With the inactivity of Congress, the negatives of student loans nationwide continue to accelerate. Experts estimate that across the country college loan debt is increasing at a rate of nearly $2,854 per second. To put that into perspective, consider that the National Association of Realtors reported in November 2012 that the U.S. median existing home price is $180,600. Collectively, about every 1 minute and 4 seconds, the equivalent of the full cost of a substantial house is being borrowed to finance student loans.
Lawmakers have proposed different solutions.
* The Smarter Solutions for Students Act. This passed the Republican-controlled House. This legislation would tie the student-loan interest rate to the interest rates on 10-year Treasury notes, meaning the rate would vary with the market. Rates would also vary over the life of the loan: borrowers interest rates, and monthly payments, would change from year to year as the loan is repaid.
* The Obama Solution. The Obama administration sees its expanded income-based repayment program, which ties borrowers' repayment to their discretionary income and forgives the debt after 20 years, as the best way to ensure that borrowers can afford their loan payments. There's no interest rate cap in this plan.
* The Responsible Student Loan Solutions Act. This one was introduced last month by Democratic Sens. Jack Reed of Rhode Island and Dick Durbin of Illinois. It would tie the interest rate on student loans to the rate on a 91-day Treasury bill, plus an additional percentage to cover the cost of administering the loans. The U.S. education secretary would be the one to determine how much to add. As in the House Republican proposal, rates would vary from year to year over the life of the loan.
* Republican Senate Solution. This is the work of Sens. Lamar Alexander from Tennessee, Tom Coburn from Oklahoma and Richard Burr from North Carolina. Their legislation would tie all federal student-loan interest rates to the 10-year Treasury rate (currently 1.75 percent), plus 3 percentage points to cover the costs of collections, defaults and other risk factors. That, they say, would benefit students and families by cutting rates on almost all federal student loans to a little under 5 percent for the coming school year. Under the proposal, interest rates would remain the same over the lifetime of a loan, but the rate on a loan taken out this year might differ from one taken out next year because market rates vary.
* The Warren Solution.Also known as theBank on Students Loan Fairness Act.Sen. Elizabeth Warren, a Massachusetts Democrat, has a fixed-rate proposal on the table to have the Federal Reserve fund student loans and charge the same interest rate as it does for banks -- 0.75 percent.
"It's the congressional Republicans who have their act together in support for their bill," said consultant Puckett. "All these other options, and the apparent disagreement among Senate Democrats and the White House, mean the fate of the bill could rest on whether the House measure can pass with bipartisan support and be amended in the Senate.
"And it puts the Obama administration in the unusual position of being allied most closely with congressional Republicans, usually the president's staunchest opponents," he said.
Republican Pat Toomey, senior senator from Pennsylvania, has been an outspoken maverick in the debate. He voted against both Democratic and Republican proposals in the Senate.
A spokesperson for Toomey told Sunshine State News the two proposals would only have decreased student loan payments by about $7 per month. A better approach, she said: Address the rising cost of education, unsustainable government debt and inadequate employment opportunities.
Reach Nancy Smith at nsmith@sunshinestatenews.com or at 228-282-2423.
