WASHINGTON — With lower-income students facing a sudden spike in the cost of new college loans, a divided Congress is resuming a deeply partisan fight over the issue this week.
Last week, the interest rate on one type of federal loan doubled from 3.4 percent to 6.8 percent — a change that could saddle new borrowers with an extra $1,000 or more in future costs.
The overnight increase occurred because Republicans and Democrats haven’t agreed on either short-term or long-term solutions to the burgeoning problem of student debt. (The rate increase doesn’t affect any existing federal loans).
“We see student debt exceeding credit card debt in America,” said Senate Democrat Tammy Baldwin of Wisconsin.
Most Senate Democrats support a bill that would restore the subsidized rate on so-called Stafford loans to 3.4 percent for another year while lawmakers work on broader reforms. It comes up for a vote Wednesday, but appears to lack the 60 votes necessary to defeat a filibuster.
Republicans say it costs too much. The GOP-controlled House has passed a very different plan pegging interest rates on federal loans to the government’s cost of borrowing, though at a higher marked-up rate. But that plan would permit rates to float as high as 8.5 percent over time, and has little Democratic support.
Senate Republican Ron Johnson of Wisconsin agrees with Baldwin that student debt is a big problem, but his view of the issue couldn’t be more different. While Baldwin says decreases in student aid and state education funding have exacerbated student debt, Johnson contends that government spending has fueled the problem by making it too easy for students to borrow money.
“Because we make these loans very readily available, we entice (students) into incurring debt,” says Johnson. He adds that the government is also a culprit in rising college tuition because it has been “throwing money at education.”
“When we make loans far more accessible, when we subsidize the (interest) rates, who pays for that? The taxpayers — a lot of working people who aren’t sending their kids to college — they’re paying for those loans,” he said. “Whenever you subsidize things, you create market distortions. . (Let’s) make people pay fair value for the loans so we’re not enticing them to go into debt.”
In addition to the leading House and Senate bills, some lawmakers have discussed possible compromises. The White House has a plan of its own, which ties interest rates to the government’s cost of borrowing, but with less of a “mark-up” than in the House bill. But so far partisan differences have prevailed, with each side blaming the other for the impasse.