Breaking Down the Student Loan Bill
May 17, 2012

Written by Priya Krishnakumar for

If you’ve been paying attention to what’s been going on in the world of student loans, you’ll know that on July 1, interest rates on subsidized federal loans are set to double. However, a bill introduced to Congress by the Democratic Party aims to prevent this hike in interest rates and maintain the status quo—that is, if it can get through Congress at all. Here, we sort out what the bill means, who it affects, and why it really matters.

Who it affects:

If the bill is not passed, interest rates for Stafford loans will rise from 3.4% to 6.8%, affecting over 7 million college students who have chosen to take out subsidized government loans. In their attempts to court the Republican vote, Senate Democrats arranged for a group of college undergraduates to testify how the hike in interest rates would affect them, with one notable Howard University junior imploring Congress to not make it harder on her to pay off the nearly $13,500 she will owe in Stafford loans upon graduation. This amount is approximately the average owed by a student who chooses to take out Stafford loans. With the hike in interest rates, students would have to shell out approximately $2,600 more than with the current 3.4% rate. The hike in rates would affect students taking out new loans starting July 1.

Why it matters:

According to the New York Times, in 2011 Americans took out $120 billion in student loans, twice the amount of the decade before. Americans owe over $1 trillion in such loans, a number that in 2010 passed the amount of credit card debt amassed by the public for the first time. When the Democratic Party took the House majority in 2006, the party reduced interest rates to the current 3.4%, a rate reduction that expires on July 1. If no legislative action is taken, the rate will revert back to 6.8%, greatly increasing the amount of interest new college graduates will have to pay while facing an ever more challenging job market.

Who’s for it:

The Democratic Party, which introduced the bill, is pushing for debates to begin within the Senate as soon as possible so that the issue will be resolved by July 1, when interest rates will double. While both parties are for maintaining the current interest rates, the disagreement lies in where the funding for maintaining the interest rates will come from. Congressional Republicans want to pay for the plan by cutting money from the Prevention and Public Health Fund, a component of Obama’s health care plan, while Democrats want to increase Social Security and Medicare payroll taxes on high-earning stockholders of some privately owned companies. Last week, the bill was blocked by Senate Republicans, who voted 52 to 45 against a motion that would allow debates to begin.

The Big Picture:

While both sides agree on the outcome, partisan debates currently have the fate of the student loan bill in limbo. Furthermore, debates on the funding of the bill highlight just how polarized this Congress is, and could have potentially far-reaching effects during the upcoming November election as a new generation of college students come of voting age. Regardless of petty disputes, Congress needs to put its partisan squabbles aside and act fast in creating a solution—otherwise, in just a couple of months, students will face even more obstacles in paying off their student loans in an already formidable economy.


Priya Krishnakumar writes for and attends Northwestern University’s Medill School of Journalism