July 24, 2013
Mr. President, we've been hearing really two debates around here in the last few days, in fact in the last few weeks and months, about student loans. Both are important, but they're separate and I think they need to be separated and thought of as two separate debates as we consider the issue that's before us this afternoon. The first and the larger issue is the cost of college. It's too high. Everyone agrees to that, and in fact the cost of college, of higher education, has exploded in the last 30 years.
In a former life I used to interview people for a living on television, and in the 1980's I interviewed the financial aid officer at one of our Maine colleges. And he made a very interesting point. He said, "Angus, you know if you look back over the last 40 or 50 years, the cost of a private college education in the U.S. has almost exactly tracked the cost of a new Ford automobile. In the 50's, $1,500, a car and a college education. In the 60's, about $3,000, a car, and a college education. That relationship continued into the 90's, and then something happened. Because today a new Ford is about $18,000 dollars and a private college is approaching 60, something like $58,000. That is a real problem for all of us. It's a problem for parents, it's a problem for students, it's a problem for the government who supplies the loans, it's a problem for Pell grants, it's a problem for all of us. And it's one that we need to discuss. But that's not the issue that's before us today.
There is some discussion in this earlier debate, in this bigger debate about college costs, about what should the federal role be? Should it be to support and help students go to college, and indeed we've had this discussion for the last 25 or 30 years, going back to the time of Pell grants which were designed to help students, particularly low-income students, go to school. We've had various iterations of the student loan program. At first it was lodged in the banks and it was a guaranteed student loan, and then some years ago it was made exclusively a federal loan.
And I can make the arguments, and we've heard some of them on the floor, the Senator from Vermont very eloquently made the argument that we need to make college accessible. And we should do that. But not in the context of the discussion we're having today about student loans. It's a larger issue. And I'm sure that Senator Harkin and his committee are going to take that up in the reauthorization of the Higher Education Act later this year.
I can be very passionate and persuasive about the importance of affordability of college. In fact I would argue that the GI Bill back in the early 50's and late 40's is one of the most important economic development investments this country ever made. Because it sent a whole generation of young Americans to college, and it really was the mainspring of our great economic growth in the 50's and 60's. The problem now though, if we're talking about a massive new federal support for education, for higher education, it runs into three problems it seems to me that we're going to have to examine and really think about as we move forward in this debate. One is financial, another is political, and the final one is economic.
The financial problem is, we're broke. Every dollar we spend, in addition to what's being spent now, and in fact including about 30% of what we're spending now, is borrowed. So if we're going to significantly increase federal grants or subsidies to students, they have to come from somewhere else. And as Senator Carper spoke yesterday, I heard him talking about this, and he said, "Do we really want to say, okay we're going to cut Head Start in order to give funds to students, are we going to cut somewhere else, or how are we going to make those kinds of allocations?" Every dollar must be borrowed, and that's just a financial reality that we're in today.
The political reality is that we're in a situation of divided government. The central reality of our political times is, "Nothing happens in this city without votes from both parties." It's simple arithmetic. We have a President who's a Democrat, we have a House of Representative that's controlled by Republicans, we have a Senate with a majority of Democrats but important powers to the minority party, so the bottom line from all that is, "Nothing happens without bipartisan votes."
So as much as we or any group, whether it's the Democrats, the Republicans, our two Independents, as much as we might want something, if it doesn't have bipartisan support it's simply not going to happen. That's the reality. And that indeed is the reality that drove Joe Manchin and I to begin these discussions about six weeks ago when we were talking about student loans there was a Democratic proposal which didn't get enough votes, there was a Republican proposal which didn't get enough votes, and everybody walked away. And I was haunted by the experience of the sequester where the same thing happened. Democratic proposal, Republican proposal, everybody hates the sequester, but it's happening.
So we felt we've got to open some discussions because we've got to find a way to get those votes. To get enough votes to get a proposal through the Congress so that students aren't facing way higher interest rates this month than they should be. Because no action, make no mistake about it, means that students will be paying dramatically higher interest rates than they should be given the current cost of money. Why? Because Congress fixed an interest rate. I would argue that the last thing Congress should ever do is fix an interest rate: it will always be wrong. Either wrong for the students as it is now dramatically, or wrong for the taxpayers at some point in the future. We can't predict what interest rates can or should be, and fixing a rate, which is what we're facing now, 6.8%, is always, at this point, as I said, is dramatically wrong for students.
In terms of the political realities around here, my dad was a lifelong poker player. And one of the things I learned from him as one of the guiding principles of my life is, you've got to play the hand that's dealt you. And the the hand that's dealt us right now is that it takes both Republican and Democratic votes to get anything through the United States Congress. That's the reality, and that defines our ability to get things done. It doesn't mean we can't get things done, it just means we can't always get our way, and that compromise has to be part of our lexicon.
The final issue about whether we want to create a massive new support program for college education, is economics. I'm not saying that this is a dispositive argument, but I think it's something that we have to think about: that the explosion of college costs that I talked about that had started in the 90's, corresponded to a large extent in the availability of additional money for scholarships and loans and grants, and the colleges essentially ate it up.
We can go through great effort to find money to increase Pell grants by $1,000. Which we all feel good, we've done something for the students. But if the colleges increase their costs by $1,000 nobody wins. The federal government and the taxpayers are out $1,000, the students are in exactly the position they were before; they've still got to find the difference because the money has just been eaten up by the increase in costs. And I think that's why we've got to be thinking about what are the implications of actions that we take. And just saying we want to give more money to students for college, if indeed that money immediately turns into higher costs and higher tuitions, nobody has gained, least of all the students because they end up with this huge debt burden.
We can and should have this discussion. It's an important one. But it's not the discussion that's before us today. The discussion before us today is really pretty simple. Do we want to continue a program that has fixed rates at 6.8% when currently rates are running more in the 3% range? In other words, do we want to balance the federal budget for the next four or five years on the backs of our students? I don't think we should do that. And I think we've come up with a proposal that doesn't do that, that dramatically benefits students as long as interest rates are where they are, and it protects students on the upside.
I try to always think about problems as if we didn't have all the history, and we simply had a blank sheet of paper and said, "How should we go about this? How should we structure a student loan program in the federal government? If we didn't have all the back and forth and the history and the fixed rates and all those things." It would seem to me that if you sat down in a room with a group of bright people they'd say, "Number 1, the government is going to have to borrow this money that it then lends to the students, because we're broke. And that therefore the students, in order to be fair to the taxpayers and the students, the students should pay what it cost the government to borrow the money, plus a little bit for the cost of administering the program and the risks of default."
That's exactly where we landed in this proposal. And people talk about market rates. And yes they are market rates, but it's the 10-year Treasury bill, which is one of the lowest rates in the country. This isn't the prime rate, this isn't LIBOR, this is one of the lowest borrowing rates you can ever have. It's the borrowing rate for the United States government, which heretofore anyway has had a pretty good credit rating. And therefore the students are guaranteed that they will always be below the outside market. If they went to a bank with a loan with no collateral, no co-signing, no job, the rates would be much higher than what we're talking about here.
By the way, it's important to understand because there's been so much discussion about this, this is not an adjustable rate mortgage. Once a student, if a student, if we can manage to pass this bill and get it through the House and get it to the President in the next week to ten days, once a student signs up for a loan this fall, their rate for that loan will be fixed at 3.86% for the term of the loan. For the term of the loan.
Now it's true that the following year if they need another loan, that rate will be the T-bill plus 2.05% for the term of that loan. In other words the loans, the loan rate doesn't change each year according to the rates, and I think that's an important distinction. I think there's been some confusion about this. And in addition, there are provisions in current law, which this bill doesn't change, that allow for forgiveness of student loans under certain circumstances depending upon how long the loan has been in place and the employment that you have, and also limits on how much you have to pay as a percentage of your income. As I said before, I don't believe Congress should be setting rates.
Let's talk about the effect of this proposal on students. The first effect is that it will cut the rates that students are going to have to pay for their loans this year almost in half, from 6.8% to 3.86%. So a freshman going to college starting in 2013 this year, this is what they would pay for their total loans under this proposal. It says "Bi-Partisan", it should say "Non-partisan". This is what they'll pay under current law. That's a dramatic difference. That's money out of the pocket, billions of dollars out of the pockets of students in the next two or three years. Now, everybody says, "But what if rates go up? Rates might go up." Well they might go up, they might stay the same, they might go down. But even if they go up, under the CBO's projections, the Congressional Budget Office projection, here's a student starting college in 2017, and here's they would pay a little bit more under our proposal, it's the difference between 24,800 and 24,295, about $500. This difference is about $2,000. This is money in hand. This is maybe, depending on what happens with interest rates. It's a billion, what's worth more a billion in hand or a billion in the bush? I think it's a billion in hand because these are the rates that kids are going to have to face right now.
I think this is a great deal for students. Number one, it dramatically lowers the rates in the early years, and number two, thanks to the hard work of Tom Harkin who negotiated like a tiger, there's a cap on the upside so students are subjected if rates happen to go way up as they have occasionally but not very often in our recent history, up into double digits, there's a cap of 8.25%. So the students enjoy the benefits of the low rates, but their exposure to too high rates is capped. I think that is a sensible and prudent and beneficial proposal for students.
The savings to students next year would be something like 8 or 9 billion dollars. Otherwise if we do nothing here this week, that's the amount they're going to have to pay. The future is uncertain, but I think it's important to talk about projections of interest rates. Because a lot of the discussion here is about that the students are going to have to pay so much more because the CBO projects interest rates to go up. Well by the way, even on the CBO's projections for undergraduates the rates would never hit the cap. They'd be in the low sevens, very close to where the present rate is.
But let's just talk about CBO interest rate projections because that's what's driving a lot of the anxiety around here. Here's a CBO, let's pretend it's 2003, 10 years ago, and we go to the CBO and say, "What are you projecting for interest rates?" Just as we did a few weeks ago. And here's what they projected. They said, "Well interest rates are around 4%, but we think they're going to go up around 5, 6%." That's the projection that CBO used in 2003. Okay, the good news is we know what actually happened. Again starting in 2003, here's the actual cost of interest rates. Look at the difference. If we were basing our decisions on projected interest rates, look at the huge difference that took place. And all of this represents money in the students' pockets as opposed to fixing the rate. So yes the projections are that they'll go up, but we don't know that. And I'll take money in hand any day against a possibility that there might be a payment later on. And we don't really know that, it could go either way. If interest rates go way up as I said the cap kicks in. And the cap of 8.25 is very close to the 6.8 that we have now. It results in about, I don't know, 20 bucks a month difference between the cap and the 6.8 if indeed we go all the way to the cap.
I think this is a prudent and responsible proposal; it's the best of all worlds for the students because they get low rates now and they get a cap if rates go up. And I think it makes sense for the taxpayers. And I'm perfectly willing to have the debate, to have the discussion, about A: what do we do about college costs, and B: should the federal government be playing a greater role in terms of support for students, I think that's a very honest discussion. But this is called the student loan program. It's about loans. And the implication of a loan is that it's to be paid back with some reasonable rate of interest. Pell grants are grants. And we have tax credit programs that are in effect grants. This is one part of the student aid puzzle, and what we have before us is a prudent, sensible, beneficial program for the students.
And I'll conclude just by saying the choice is really very clear. Because if we don't act on this bipartisan proposal, that we believe will have a receptive ear in the House of Representatives, we know that the President supports it and is ready to sign it tomorrow, if we don't move this bill nothing happens, nothing happens during August, students are signing up for loans at almost double the rate they should be. I think that's unfair to students, and I think they sent us here to solve problems. And this is one that I believe we can tackle. We can and have solved it. Mr. President, I yield the floor.
