Boehner: Congress Oh-So Close To Extending Lower Student Loan Interest Rates

The clock is ticking on the June 30 deadline for Congress to agree on a way to extend subsidies for federal Stafford student loans that would keep the interest rates from doubling to 6.8%. Now Speaker of the House John Boehner has said lawmakers are tantalizingly close to coming to an accord on the matter.

“We’re moving, I think, towards an agreement on a transportation bill that would also include a one-year fix on the student loan rate increase,” said the Ohio Congressman after a meeting with House Republicans on Wednesday.

Members of the Senate have already agreed on a bipartisan deal that has the blessing of the White House.

A 2006 measure gradually rolled back the interest rates on Stafford loans to their current level of 3.4%. If no extension or other agreement is signed before July 1, those rates automatically jump up to 6.8% for new borrowers.

This change would affect somewhere between 7 and 8 million students. For someone who borrows the maximum $23,000 in Stafford loans, this would add around $5,000 to the amount paid by the time the loan is repaid.

As to how the subsidies would be funded, here’s what the AP has to say:

Under the agreement, the government would raise $5 billion by changing the way companies calculate the money they have to set aside for pensions. That change would make their contributions more consistent from year to year, in effect reducing their payments initially and lowering the tax deductions they receive for their pension contributions.

Another $500 million would come from increasing the fees companies pay for the government to insure their pension plans, linking those fees to inflation.

The House had discussed putting forth an extension that paid for the program with cuts to new preventive health care programs. Meanwhile, an earlier Senate version that raised taxes on owners of some privately held corporations was blocked by opponents.

The House measure seems to involve both the Stafford loan extension and a bill recertifying federal authority to spend money on transportation initiatives, as well as collect taxes on fuel. The AP reports that this bill has been held up by disputes over environmental reviews of highway projects and a proposed oil pipeline from Canada to Texas and other issues.

Congress near deal on Stafford loans, Boehner says [NBC17.com]

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  1. Foot_Note says:

    but! we cant raise taxes on the rich^Wpeople!

    • stinerman says:

      No need. Real interest rates are negative. That means that it’s more expensive to raise taxes to pay for something than to take a loan out to pay for it. I’ll let that sink in for a moment.

      This bears (pun intended) repeating, so I’ll say it again. It is cheaper for the government to finance this program with debt than it is for them to pay cash up front.

      • ferndave says:

        But debt is baaaad! Owe more money to China? Kill more jobs with the crushing debt? Think if the children! Who cares if interest rates are ridiculously low, and like you said, cheaper than other methods. We have to stick to stupid rhetoric. For the good of the country!

    • frank64 says:

      Once we get to knowing that we can’t keep looking at the rich to pay everything we will be able to start making better decisions about how we spend money.The middle class is going to have to start paying taxes on the things the middle class needs.

    • TasteyCat says:

      How many things do we plan to pay for with higher taxes anyway? I lost count.

  2. gman863 says:

    Why doesn’t Obama just grant loan amnesty to everyone under 30, Hispanic or not?

    /s

  3. AustinTXProgrammer says:

    Why don’t we gradually unroll the reductions? Cheap money is just driving inflation. Cheap Mortgages lead to housing inflation, cheap student loans to tuition inflation.

    Sure, these happen in the course anyways, but we seem to like to pour gasoline on the fire.

    • stinerman says:

      There is an interesting idea to only allow federal education loans/grants to be available for state schools. I believe that everyone should be guranteed the ability to attend a post secondary institution regardless of the ability to pay. I don’t believe everyone should be guaranteed the ability to attend *any* post secondary institution regardless of the ability to pay.

      • chargernj says:

        Funny you say that, it shows that you have little understanding of how Title IV financial aid programs work.

        The law says that cost should not be a barrier to higher education, the law does not say that you can attend any school you want on the governments dime. If you want to attend an expensive private school you are only going to get so much from the federal govt. You have to find a way to make up the difference.

        I’m a financial aid counselor at one of those expensive private colleges. I’ve had to explain this concept to many people.

  4. Coffee says:

    Pfft…why do people keep whining about student loan costs? College has always cost money, and it’s up to young, poor people to decide if the debt is worth it. It’s not like college isn’t this expensive everywhere. I mean, in Germany, college costs…um…$933 a year. Forget Germany, I mean France! Yeah…in France it’s…oh…it’s $585 a year? Hmmm…this is awkward.

    Sorry, young people!

    • Evil_Otto would rather pay taxes than make someone else rich says:

      But then even the POOR students get to get an education! Won’t that make it harder for the retards with a lot of money to continue their control over people who are smart but poor? SOCIALISM!

      • Coffee says:

        Not if we hire all the ones who are good at math and pay them well to work for us and launch a generations-long media campaign to dismiss and marginalize the ones who prefer liberal arts as holier-than-thou elitists. They will eat their young. I promise.

      • frank64 says:

        I come from a poor family. When I was going to college in the 80′s and again in the 90′s I was able to work my way through school. I did get a student loan for the low interest rate for a car. It was a state school and the tax rate for my state was actually lower than it is today. Except for guaranteeing the student loan.

        The problem is not the rich wanting to control. It is the cost of government and education growing more than inflation, you want to get this extra costs from the rich, thus enabling it. I think we should try to put a lid on the costs. This is a good argument for starving the beast. To do anything else just keeps feeding the hungry monster, and it is going to keep wanting more and more food. Why not stop now instead of many years down the road?

        • psm321 says:

          tuition isn’t only going up because of the things you mention… states used to contribute a ton more towards it, lower tax rate or not

          • frank64 says:

            That is my point, the state has reduced education funding to pay for other increases in government. Even a higher tax rate cannot pay for our increased spending.

    • Willow16 says:

      It does cost more in England than Germany and France but, when I looked into it a few years back, it would cost less to send my daughter to the University of Hertfordshire for a bachelors degree than to send her to Rutgers. The cost to fly her back and forth would be an extra expense but a bachelor’s degree only takes three years in England because they only take classes for their major as opposed to here where students must take general ed requirements.

  5. dush says:

    So are they saying existing loans that students have will then have their interest rate doubled or is it just new loans they take out? If it’s the former I didn’t realize Stafford loans were variable rate.

    • stinerman says:

      Anything that isn’t a consolidated loan. Stafford loans are variable rate, but you can “consolidate” the loans at which time they become fixed. I was able to consolidate when interest rates were incredibly low so I’m sitting at 2.75%. Lucky me.

    • chargernj says:

      just new loans

  6. DFManno says:

    I wouldn’t advise debtors to hold their breaths. The Bonerman doesn’t control his caucus. He could cut a deal only to find that the House GOP whackjobs and fascists won’t go along.

  7. lawnmowerdeth says:

    I paid mine off at 7%. To hell with kids these days!

    • polishhillbilly says:

      7% here as well. 16K in loans. Paid off in 2 years after college.
      2 B.S degrees 5 years of college.
      Go to the cheapest university you can to complete your state mandated classes, then go to the school of your choice.
      you can start paying on your loans while you are still in college.

    • aerodawg says:

      No damn lie. I $%(*&$% resent being asked to pay not only the principle and interest on my loans but the interest on someone else’s loans, especially when the cost difference is minimal over the 10 year amortization of a student loan…

  8. Extended-Warranty says:

    I’d prefer instead for students to be educated on how to not rack up $100k in student debt on worthless degrees.

    Everyone likes to complain about the cost of education, but it’s pointless. If demand is there for a good or service, who’s to say it should be cheaper?

    I understand spreading costs for the greater good, but our subsidizing has gone way too far. This culture of going away to school and not working while there is one of the worst cultures that gets ignored.

    • Coffee says:

      Subsidizing has gone way too far? What are you even talking about? We have the most expensive post-secondary education system _in the world_ because we’re terrible about funding our public universities with taxpayer dollars and force them the increase tuition to make up the shortfall.

    • Peggee has pearls and will clutch them when cashiers ask "YOU GOT A WIC CHECK MA'AM?" says:

      Pretty much the first rule to “not racking up $100K in debt” is not to attend a for-profit college. Yet…it’s pretty much the only option if you need your classes (all of the classes required for graduation, no surprises when you suddenly find out some 400-level class is only offered at 12PM) to work around a full-time job schedule, lest one be accused of “going away to school and not working while there.”

      And also, what Coffee said.

  9. VeryFroid says:

    “Under the agreement, the government would raise $5 billion by changing the way companies calculate the money they have to set aside for pensions. ”

    Which companies ? How does changing the way you make a pension calculation raise funds for student loans ?

  10. Coelacanth says:

    Doesn’t everyone seem to forget that student loan interest rates were 6.8% back in the 2006 academic year?

    At their current rates, the government is practically lending money for free, on an inflation-adjusted basis… I’m sorry, I’m relatively liberal leaning, but that’s a luxury America can’t afford right now if we’re running extreme fiscal deficits without considering raising taxes.

    How about lowering the tuition bill up front? Lower interest rates only encourage students to borrow more, and I’m sure educational institutions are more than happy to raise fees accordingly!

    • Blueskylaw says:

      “At their current rates, the government is practically lending money for free”

      What’s even worse is lending BILLIONS of dollars to banks at ZERO (0%) percent interest and having them turn around and loan that money right back to the government. Get rid of astoundingly CRIMINAL behaviour like this and you’ll probably have enough money to give to students at little or no cost. I’d rather see students getting this money than banks lining their pockets.

      “A newly-released study from the Congressional Research Service bolsters claims that the nation’s largest banks profited off the Federal Reserve’s financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates.

      The report reinforces long-held beliefs that the banking system in essence engaged in taxpayer-financed arbitrage: They got money for free, then lent it back to Uncle Sam while collecting juicy returns. Left out of the equation are the millions of everyday borrowers, like households and small businesses, who were unable to secure loans needed to tide them over until the crisis ended”

      http://www.huffingtonpost.com/2011/04/26/fed-lending-helped-wall-street_n_853884.html

      • Coelacanth says:

        Sorry, I had a more elaborate response for you.

        Basically, I agree that these concerns raise an important question about the responsibilities of the Fed and the role of the discount window. As such, even in a higher-interest rate environment, major financial institutions have been able to borrow against this window in order to invest in higher-yielding securities. The question just became which was less risky: extending loans to businesses and consumers, or putting their money back towards the federal government.

        SInce treasury notes and bonds are essentially considered risk-free, and we were in the midst of what appeared to be a financial apocalypse, I can understand why instead of betting on a higher yield-spread in lending, it would choose to buy government securities instead. Essentially, it’s free money!

        There may be some positive aspects to large banks buying up treasury bonds, though. The primary one that I can think of is that the government is given the ability to re-finace its debt at much lower rates. In effect, the government bailed itself out. While Jon Q. Taxpayer may not have been able to start his own business, or refinance his mortgage without excellent credit and a healthy equity cushion, it allows the government to finance its past, present, and future activities at more attractive rates via the increased demand in Treasuries.

        An interesting question whether lowering the Fed Funds rate to historic lows creates more economic opportunity and saves the government money. This programme didn’t cost the government anything, either – although it does encourage the government to spend more freely.

        So given these two situations, how does tax-payer funded arbitrage compare to the marginal economic benefits to be reaped from lowering student loan interest rates from 6.8 to 3.4% – and does that offset the immediate short-term costs of doing so?

        Do I believe there should have been additional strings attached to the bailout and low-interest rate policies? However, my opinion regarding student loan interest rate reductions still stands.

  11. SirWired says:

    What I want to know is: why are student loan rates getting modified as part of a “Transportation Bill.” Why is congress utterly incapable of keeping bills associated with their nominal purpose? Why do they have to engage in brinkmanship over unrelated matters?

  12. Osotogeri says:

    He’s trying to steal the money from the Federal work force. He wants Federal employees to contribute more money to their pitiful annuity to pay for this. He can’t steal from Social Security or Medicare anymore. They are almost bankrupt. We need to stop the wealthy taking their pay as constructive dividends. While the working class Americans pay higher effective tax rates.

  13. kenj0418 says:

    Orange you glad Boehner is working on it?

  14. Nobby says:

    We need to stop hyping college education as the key to greater earning power. Perhaps it was decades ago but now it’s just an expectation that has led to colleges being full of folks who could/should be taking other paths to building their future. Many seem to go to college and run up debt only because it’s the done thing. I haven’t seen many cases where one’s college education was a factor in how well they actually performed their job. Me and most of my colleagues have grad degrees but we all know a good HS grad could do our jobs satisfactorily.

    I guess I’d like to see RELEVANT, AFFORDABLE vo-tech training get more props. Times have changed and I bet it would be an attractive option for many who would otherwise “end up” in college. It could definitely appeal to the instant gratification seekers. No time wasted on “required” courses in Art History or Psychology. Just pure-dee training to provide immediately marketable skills.

  15. Dave on bass says:

    America’s got the weirdest Boehner right now.

  16. kierzandax says:

    It’s not going to happen now. With the AHA defeat, the GOP has to find something else to blame on the President.

  17. Maz says:

    Norway does it better-er?

  18. PsiCop says:

    My guess is, with the healthcare ruling having gone against them, the tea partiers will — in their fury — dig their heels in harder and work to derail any kind of deal. Just to demonstrate how angry they are. (As if no one could possibly have guessed they’d be sanctimoniously enraged.)