WASHINGTON, D.C. – U.S. Senator Angus King (I-ME) released the following statement today after the Senate rejected a short-term proposal to extend 3.4 percent student loan interest rates for another year. Senator King, who did not support the proposal, joined with Senators Joe Manchin (D-WV), Richard Burr (R-NC), Tom Coburn (R-OK), Lamar Alexander (R-TN), and Tom Carper (D-DE), last month to introduce the Bipartisan Student Loan Certainty Act, a compromise bipartisan solution that would provide a permanent solution to lower and fix interest rates for 100 percent of newly issued student loans. Senator King’s proposal did not receive a vote.

“Although we did not have the opportunity to vote on our bipartisan student loan reform bill, I believe it can still serve as the foundation for a permanent solution that keeps student loan interest rates at a reasonable level,” Senator King said. “Short-term fixes that continue to delay a comprehensive solution are not in the best interest of our students and are not what the American people elected us to do. I look forward to continuing to work with colleagues on both sides of the aisle in order to reach a bipartisan, compromise solution that is both fair to the American taxpayers and fair to our students.”

The Student Loan Certainty Act requires that, for each academic year, all newly-issued student loans be set to the U.S. Treasury 10-year borrowing rate plus 1.85% for subsidized and unsubsidized undergraduate Stafford loans; plus 3.4% for graduate Stafford loans; and plus 4.4% for PLUS loans. The interest rate would be fixed over the life of the loan and the cap on interest rates for consolidated loans would remain at 8.25%. The Congressional Budget Office has determined this legislation would reduce the deficit by $1 billion over ten years.

 BACKGROUND:

The Bipartisan Student Loan Certainty Act provides a long-term fix for all student loans. This bill saves students $8.8 billion in 2013 and over $36 billion in the next four years by giving students access to the lowest rates possible, allowing them to take advantage of low borrowing costs when everyone else in the economy can borrow cheaply. Most importantly, this bill strengthens borrower protections by reinforcing the 8.25% interest rate cap on consolidation.

Four out of every five students with subsidized Stafford loans take out other federal loans with rates at 6.8% or 7.9%—a one-year extension of the subsidized rate leaves these other rates at unacceptably high levels. We must put aside politics and act now to find a real, long-term solution that ensures access and affordability for all students seeking higher education.

The Bipartisan Student Loan Certainty Act Summary 

• Strong Borrower Protections:
  • Strengthens the 8.25% Consolidation Cap: Borrowers can consolidate all of their federal loans with a rate that is either a) the weighted average of the loans or b) a maximum of 8.25%. This bill requires the Department of Education to remind students in a clear and easy-to-understand way of their consolidation options.
  • Repayment Caps: Income-based repayment allows students to reduce their monthly payment based on their ability to repay and after 20-25 years, any remaining debt is forgiven.

• Undergraduate Subsidized and Unsubsidized Stafford Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 1.85%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
  • If a new loan was issued today, the interest rate would be 3.66%.

• Graduate Unsubsidized Stafford Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 3.4%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
  • If a new loan was issued today, the interest rate would be 5.21%.

• PLUS Loans: Sets the interest rates on all new loans to the U.S. Treasury 10-year borrowing rates, plus 4.4%to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.
  • If a new loan was issued today, the interest rate would be 6.21%.

Student Loan Interest Rate History

• In 2007, Congress temporarily lowered interest rates on subsidized Stafford loans over 4 years from 6.8 to 3.4%.
• In 2012, Congress extended these low rates for 1-year at a cost of nearly $6 billion with the expectation that we would find a long-term fix during that year.
• On July 1, 2013, the one year extension expires.
• It is time for Congress to do its job and pass a long-term solution.

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