Digging Into Student Loan Legislation: What These 7 Pending Laws Would Mean
Recent news tells us that student loan debt is continuing to climb and delinquencies are at record high levels. More than $110 billion of student loans are more than 90 days past due. While some articles are citing unemployment levels for age 20-24 year olds at 30%, when you look at Bureau of Labor Statistics figures, college grad unemployment rates is close to 7% and overall unemployment for this age bracket is 13.3% and can’t fully account for the crisis we’re facing.
Even discounting the uber-terrifying one-third statistic that seems overblown, there’s no doubt there’s a crisis. And with federal student loan rates for subsidized loans set to double in a few short weeks, at long last, lawmakers are taking notice. A barrage of legislation around student loans and interest rates have been released in the House and Senate. We’ve prepped the slate of them below so you can see what’s being mulled over in Congress so you can get involved and raise your voice:
HOUSE OF REPRESENTATIVES LEGISLATION
HR 1911 – Smarter Solutions for Students Act
This bill, also called “Improving Postsecondary Education Data for Students Act,” was proposed in the House by Rep John Kline (R-MN) and gained passage along party lines with four Democrats crossing the aisle. You can read the full text here, but the essence is to tie interest rates on new loans to the 10-year Treasury note rate plus 2.5% with a cap at 8.5%. PLUS loans would have the same treatment plus 4.5% capping at 10.5%.
Pros: So long as T-bill rates remain low, the rates will be very competitive and the cap is reasonable.
Cons: This does nothing for those already mired in debt, so it doesn’t touch the existing loan crisis. Another downside is that if this rate fluctuates considerably, borrowers could end up paying much more!
HR 1595 – Student Loan Relief Act of 2013
This bill was proposed in the House by Rep Joe Courtney (D-CT) and was referred to committee in April. The Student Loan Relief Act has been co-sponsored by 143 Democrats with no Republican support. You can read the full text here, but the upshot is to simply extend the current reduced interest rate of 3.4% on Direct Stafford Loans through 2015.
Pros: It would keep the interest rate on new subsidized loans from doubling up to 6.8%.
Cons: It’s a stopgap measure that only buys two years of relief and doesn’t address the existing loan crisis.
HR 1979 – Bank on Students Loan Fairness Act
Democratic Rep John Tierney from Massachusetts proposed this bill in May and it’s also been assigned to a committee for review. Tierney has been joined in this legislation by 12 other Democrat co-sponsors. You can read the full text here, but essentially it proposes to prevent the doubling of loan rates by setting new loans at the Fed Funds Rate (i.e. the discounted rate that the government uses when it loans money to banks).
Pros: It would drastically cut interest rates on Federal Direct Stafford Loans. It would be even better if it would lock in at the Fed Funds Rate when the loan was taken out rather than being a variable rate!
Cons: As it would only apply to new loans, it helps new borrowers, but doesn’t address the overarching loan crisis. And as long as the Fed Funds Rate stays low, this would be a boon, but if it spikes up to higher rates (as were prevalent in 2005-2007 reaching highs of 6.25%) this could cause serious problems for students.
S 897 – Bank on Students Loan Fairness Act
This is the Senate counterpart to HR 1979 and is the first piece of legislation sponsored by freshman Democratic SenatorElizabeth Warren. It was referred to committee in early May and you can read the full text here. It proposed to tie the interest rate on new Federal Direct Loans to the Fed Funds Rate.
Pros: It would drastically cut interest rates on Federal Direct Stafford Loans. (ditto HR 1979)
Cons: As it would only apply to new loans, it helps new borrowers, but doesn’t address the overarching loan crisis. (ditto HR 1979) Also see our note above on how high this rate can fluctuate compared to the fixed subsidized rate of 3.4%.
S 1066 – Federal Student Loan Refinancing Act
The full text of Senator Kirsten Gillibrand’s (D-NY) bill hasn’t been released yet, but in a press release about the bill she outlines the intent and cites support from student organization Campus Progress. The full name of the bill is a mouthful: “A bill to allow certain student loan borrowers to refinance Federal student loans” but its intent is straightforward. Gillibrand proposes to freeze need-based interest rates at 3.4% and would allow those with Federal student loans at rates higher than 4% to refinance at 4%.
Pros: Gillibrand aptly addresses both the impending interest rate crisis as well as the overall student loan crisis. What’s nice here also is that these are fixed rates than can insulate borrowers from market rate volatility. Her plan is a clear win for borrowers!
Cons: So far, there’s no cosponsors jumping on board.
S 1003 – A bill to amend the Higher Education Act of 1965 to set interest rates for new student loans
Senator Thomas Coburn (R-OK) has three Republican co-sponsors for his bill (read full text here) that intends to tie new student loans to the 10-year Treasury bills rate plus 3%. This is for both subsidized and unsubsidized federal loans and PLUS loans.
Pros: It’s lower than the unsubsidized rate of 6.8% and also lower than the subsidized rate will be if the current lower rate is allowed to expire this July.
Cons: This bill does not address the loan crisis for those with existing debt and is significantly higher than other proposed interest rates in this roster of legislation. And with the 3% add-on rate already perilously close to the 3.4% fixed rate currently available for many loans, any fluctuations in this key rate would make repayment harder rather than easier for most borrowers.
S 953 – Student Loan Affordability Act
Proposed by Senator Jack Reed (D-RI) with 22 Democrat co-sponsors, was proposed in mid-May and sent to committee for review. You can read the full text here, but the intent of the legislation is to extend the current 3.4% interest through July 2015.
Pros: It would stop the interest rate from doubling on subsidized federal loans. This loan also stands the best chance of gaining passage of the seven presented here. Because it’s an effective stop-gap measure and there’s just a couple of weeks left until rates double, it’s the best hope for lower rates when there’s no time for meaningful debate.
Cons: It doesn’t address the existing student loan crisis and because it also includes provisions about unrelated issues including Pension Plan distribution rules, Oil Spill Liability Trust Fund modifications and others.
What Should You Do?
There’s plenty of legislation to choose from, but the most promising proposed law for new student loan borrowers is Senator Warren’s that would see interest rates on new loans at less than 1%. The only disappointing aspect of this bill is that it wouldn’t allow refinancing of existing rates to this new preferable interest rate.
If the bill could be amended to allow for this, it would meaningfully address the ever-increasing student loan crisis. If you want to raise your voice in support of any of this legislation (or tell your lawmaker “heck no”) you can contact your Senators here and contact your Representative here.
If you’re in college, we recommend getting a summer job and paying for as much of your school as possible upfront without borrowing! And if you’ve got student loans of your own, use Tuition.io’s free student loan tool to manage and optimize your debt! Also, please enjoy these other recent articles on legislation and proposals to address the student loan crisis: