Sen. Joe Manchin seeks to avoid hike in loan interest | Charleston Daily Mail
Sen. Joe Manchin is heading up a plan to prevent interest rates on student loans from doubling next week.
Manchin and four other senators will introduce the plan today.
Federally subsidized Stafford loans account for a quarter of all federal student lending. The interest rate on those loans is set to double July 1.
The new, bipartisan plan ties loan rates to the financial markets to avoid an immediate rate hike but could mean higher rates in future years.
Still, Manchin and his fellow bill sponsors are touting the bill’s focus on stabilizing loan rates in the future. If approved, it would fix interest rates for all newly issued student loans, a departure from the current system that lets Congress set the rates for federal lending.
“This is a long-term fix that will lower rates for all students and will save students $30 billion over the next three years, making sure anyone who wants an education, can afford one,” Manchin said in a statement.
Manchin, a Democrat, joins three Republican senators — Richard Burr of North Carolina, Tom Coburn of Oklahoma and Lamar Alexander of Tennessee — as well as one independent - Angus King of Maine — in introducing the legislation.
Democratic leadership in the Senate has said the legislation is sure to fail. Some Democrats have long resisted moves to tie student loan rates to the financial markets, saying the move doesn’t provide enough protection for students.
Republicans have championed the measure in the past, saying it would help to reduce the deficit. The deal would save about $960 million over the next ten years.
“We can find common ground to help our students and ensure the next generations of Americans have the same wonderful educational opportunities that we have always had,” Manchin said.
Under Manchin’s plan, undergraduate students who take out loans this fall will pay 3.6 percent interest rates. Graduates would pay 5.2 percent and parents would pay 6.2 percent. Those rates could climb over the years as the financial markets change — there’s no limit to how high they could go.
That’s compared to right now, when some undergraduates pay 3.4 percent and others pay 6.8 percent, depending on their loans. Graduate students and parents pay 7.9 percent.
If the rate doubles, as it is scheduled to do on July 1, it could be a sudden shock to students accustomed to the current rates. But some argue that students are better off with rates doubled than with an interest rate tied to the market, since there is no limit to how high the rate could go.
In contrast, the bill’s sponsors are taking aim at the practice of allowing Congress to step in to determine loan rates.
Coburn said in a statement that the compromise would “allow market forces to help students pay for college.”
“Students and families should not have to be held in limbo while waiting for Congress to set yet another arbitrary rate,” he said.
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