A battle is heating up between President Obama and Republicans on how to prevent student loan interest rates from doubling to 6.8 percent in July — a flashpoint in the ongoing efforts of both parties to win young voters, who strongly favor Democrats.
House Republicans recently passed their bill on a mostly party-line vote, arguing that it mirrors key components of Obama’s plan. The White House threatened to veto that legislation, leaving GOP leaders furious and accusing Obama of hypocrisy.
“While we welcome that House Republicans have paid some attention to this issue this time around, their proposal unfortunately has a number of flaws, including that it fails to guarantee students a low rate in July,” a White House official, who wasn’t authorized to speak on the record, told TPM. “Their proposal also eliminates safeguards that provides middle class families most in need with lower interest rates, fails to cap monthly payments at an affordable level, and asks students to bear the burden of deficit reduction through higher interest rates.”
The core similarity is that both the White House and Republican proposals would tie the interest rates for student loans to the yield on 10-year Treasury bills. Student advocates are not particularly happy with either proposal, arguing that linking rates to the market may be good news for students in the short term while Treasury bill yields are low, but is bad news in the long-run when they’re expected to rise.
The source of the dispute is that Obama’s plan includes some safeguards to cushion the blow, such as restricting repayment obligations to 10 percent of a borrower’s income, and fixing a student’s rate to what it is when he or she takes out the loan. Because of these differences, the White House has threatened to veto the GOP’s plan. President Obama is scheduled to talk up his plan at a White House event Friday, flanked by college students.
“The two proposals are really on the same page when it comes to pegging student interest rates to some fluctuation in the market,” said Beth Akers, a fellow at the Brookings Institution and expert on education policy. “I don’t think they’re very far apart, honestly.”
Speaker John Boehner’s (R-OH) office lashed out at the White House Wednesday after the event was announced. Labeling it “stunning student loan cynicism,” Boehner spokesman Brendan Buck noted that unlike the Democratic-led Senate, the Republican-led House has already passed legislation to prevent student loan interest rates from spiking on July 1.
“It’s obvious that the White House would love nothing more than to change the subject from its growing list of scandals, but scheduling this PR stunt reeks of desperation,” Buck wrote on the Speaker’s blog, noting the similarities in the two loan proposals. “Picking a fight out of thin air where there’s policy agreement isn’t going to get the White House out of trouble, and it certainly doesn’t do anything to help students facing a looming rate hike.”
House Education & Workforce Chairman John Kline’s (R-MN) spokeswoman noted that unlike Obama’s proposal, the GOP bill caps the rate students would pay — albeit at the high rate of 8.5 percent. She also noted that it maintains existing loan repayment programs.
The White House official claimed that based on their calculations, the average student could save thousands of dollars due to the safeguards in Obama’s plan, while potentially paying more under the House GOP legislation than if Congress doesn’t act at all.
Last year Republicans were caught flat-footed when Obama demanded a one-year freeze in the student loan rate and GOP presidential nominee Mitt Romney backed him up, forcing House Republicans to drop their objections and extend the low rate. This year they’ve jumped ahead of a less aggressive Obama on the issue.
Akers argued that both proposals move in the right direction and save Congress from having to revisit the issue year after year. She said she was surprised by the White House’s veto threat given the similarities the Obama and GOP plans. “Perhaps they’re just positioning themselves politically to get the ultimate resolution to be closer to what they envision,” she said.
