May 15 (Bloomberg) -- U.S. Senate Democrats today called for a two-year postponement of a scheduled increase in the interest rate charged on education loans to millions of college students.
Senate Majority Leader Harry Reid and other top Democrats unveiled legislation that would head off an increase set to hit in July and would instead extend the current 3.4 percent rate into 2015. They rejected President Barack Obama’s call for more sweeping changes in the loan program, including replacing its fixed rates with ones that would vary with market conditions.
Senator Tom Harkin, an Iowa Democrat who heads the Senate Health, Education, Labor and Pensions Committee, said that while he supports allowing rates to float, with certain conditions, lawmakers don’t have time to sort out such big changes before July.
“We just want to do something very simple,” said Harkin, whose panel has jurisdiction over the loan programs. “Just leave it the way it is.”
Today’s measure marks the latest in a series of proposals aimed at heading off a July 1 increase that will lift the charge on subsidized Stafford loans to 6.8 percent. That’s the legacy of a 2007 law in which Democrats gradually cut rates before allowing them to jump back up because they couldn’t agree on how to finance a more permanent reduction. The federal government is the source of most student loans.
In its fiscal 2014 budget request, the Obama administration proposed pegging loan interest rates to the rate of the 10-year Treasury note plus various surcharges, a plan that worries some education advocates because it wouldn’t cap the maximum rate that could be charged. Rates could get very high in the future when interest rates return to historic levels, easily topping the scheduled doubling of the current rate in July.
House Republicans have seconded the administration’s plan. Last week they unveiled a bill, H.R. 953, that also would allow rates to float, though their plan would limit how high the rates could go.
“Actually, some of what the House did is pretty good,” said Harkin, adding that he believed lawmakers should leave more permanent changes to the reauthorization of the Higher Education Act.
Senate Democrats said their plan wouldn’t add to the budget deficit because its cost would be offset by curbing tax breaks for retirement savings accounts, oil and gas companies and foreign companies.
The plan is backed by the chamber’s entire Democratic leadership, including Senators Dick Durbin of Illinois, Charles Schumer of New York and Patty Murray of Washington. Senator Elizabeth Warren, a Massachusetts Democrat, has a competing proposal, S. 897, that would cut rates even more by pegging them to whatever the Federal Reserve charges banks for loans.
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