House approves student loans linked to interest rates

A bipartisan bill that temporarily reduces the costs of borrowing for millions of college students passed the House of Representatives Wednesday, ensuring that around nine million undergraduates will pay 3.9 percent interest on their next loan – nearly three percent lower than current rates.

The legislation links student-loan interest rates to the financial markets, offering lower rates for most students now, but higher ones down the line if the economy improves as expected.

Undergraduates this fall would borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent.

Even as they were preparing to pass the bill, many lawmakers were already talking about a broader overhaul of the nation's college-loan plans to curb fast-climbing costs as they prepare for a rewrite of the Higher Education Act this fall.

"We will have the ability to come back and look," said Rep. Sheila Jackson Lee (D-TX).

President Obama has endorsed the bill, which was sent to the White House for his signature Wednesday, despite objections from consumer advocates that the proposal could put a significant financial burden on students’ futures.

"The bottom line is that students will pay more under this bill than if Congress did nothing, and low rates will soon give way to rates that are even higher than the 6.8 percent rate that Congress is trying to avoid," said Chris Lindstrom, higher education program director for the United States Public Interest Research Group, a federation of advocacy groups.

Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 because Congress could not agree on a way to keep them at 3.4 percent. Without congressional action, rates would stay at 6.8 percent, costing students an estimated extra $2,600 per year, according to Congress’ Joint Economic Committee.

The new rates will be implemented retroactively to July 1, saving students from having to pay the extra costs.

The House and Senate passed legislation on July 18 that links interest rates to 10-year Treasury notes and removes Congress' annual role in determining rates, following Obama’s preference to link interest rates to financial markets. 

A cap on how high interest rates could climb and a lock on interest rates for the life of each year's loan convinced Democrats to join Republicans in backing the bill. Interest rates would not top 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents' rates would top out at 10.5 percent.

Despite widespread reservations, lawmakers hailed what seems to be a temporary fix of a pressing problem.   

"This is a win for students and taxpayers," said Rep. John Kline (R-MN), the Republican chairman of the House Committee on Education and the Workforce.

The top Democrat on that committee joined Kline on the House floor to urge colleagues to back the bill. "It saves students and families money," said Rep. George Miller (D-CA).

Student loans already total $1.2 trillion but a comprehensive solution remains elusive.

"Young consumers are shouldering much of the punishment in the form of substantial student loan bills for doing exactly what they were told would be the key to a better life," Rohit Chopra, student-loan ombudsman at the Consumer Financial Protection Bureau, wrote in a reaction to the announcement that student debt had passed the $1 trillion mark.

Al Jazeera and wire services