Student Loan Rates

Floor Speech

Mr. REED. Mr. President, July 1 is less than 1 week away. We need to reassure students who will be taking out loans for school this fall that their interest rates will not double.

It is safe to say most of us on both sides of the aisle would want to see a long-term approach to setting student loan interest rates rather than a temporary extension of the current rate. We have been working, Senator Harkin, Senator King, Senator Manchin, Senator Burr, Senator Coburn, Senator Warren, and many others about finding a way forward.

Unfortunately, all of the proposals that are on the table today would leave students worse off in the future, frankly, worse off than simply allowing the interest rate to double. There is a year or two, perhaps, where interest rates would stay below the rate of 6.8 percent. Then looking at rate trends, it looks quite convincing that these rates would surpass the current fixed rate and go higher.

We can not enact a long-term solution that is going to be bad for students. In fact, student groups and advocates have urged us to reject the so-called deals that are circling around with variable rates that are not capped that could lead to very high interest rates for students in a very short period of time.

One thing we have all been aware of for the last week or two is the dramatic movement of rates based on comments by the Federal Reserve with respect to their elimination of the quantitative easing program. The future looks as though we are going to see increased rates.

If we let them rise on students without any type of cap, I think we are going to, in a very short period of time, regret that we didn't take more time--be more thorough, and look at not just issues of rate structure but also incentives to keep costs down in college, and at refinancing options, because it is a staggering debt load already on students. We haven't done any of this.

As a result, today, I introduce, along with many of my colleagues, the Keep Student Loans Affordable Act. I wish to thank Senators Hagan, Franken, Warren, Harkin, Stabenow, Boxer, and many other colleagues.

This legislation will simply extend the current rate at 3.4 percent, the rate we have today for need-based loans. These are the subsidized loans that go to low- and moderate income students. It would extend them for 1 more year so we do have the time, and let's say we should and must take the time to thoughtfully develop a long-term approach to the student loan program. It is not just coincidental that we must reauthorize the Higher Education Act this Congress. We can use this time properly to ensure that we do, in fact, have a comprehensive solution that will make students better off, not just in the next several months but in the long run.

Instead of charging low and moderate income students more for their student loans, our legislation would extend the 3.4-percent interest rate by closing a loophole in the tax laws, which allows fairly wealthy individuals to defer taxes on their IRA or 401(K) type accounts. This provision would save taxpayers $4.6 billion over 10 years, which will more than cover the cost of extending the rate on subsidized student loans.

We are moving forward on a basis where we are not increasing the deficit. What we are doing is giving students another chance to maintain an appropriate loan level at 3.4 percent for an additional year. We have to take action to stop the interest rates from doubling.

Student loan debt is the next big financial crisis facing this country. We already understand from analysts that people in their twenties are putting off home purchases, automobile purchases, and are not doing what their parents' generation did because they have so much debt. They cannot move into the economy as their parents did. It is the second most outstanding household debt behind mortgage debt in the country. It surpassed credit card debt. It is affecting the trajectory of young people's lives.

Again, my generation thought by their late twenties they would own a home, in fact, perhaps moving on, fixing up, and looking at second homes. This has all changed.

Today students are caught between a rock and a hard place as they have all this debt they must carry forward.

The other thing that is so interesting is we are scrambling around here trying to figure out ways to deal with this issue. It turns out, in fact, the Congressional Budget Office has projected the loan program is actually generating revenue more than $50 billion this year and over $180 billion between now and 2023. We are actually making money on these loans. Frankly, if we don't look at the program and fix it, the irony will be students will pay more and the government will take in profits. In the long run, I think we will be worse for it because we will be depriving a whole generation of the kind of education opportunity they need.

I think we have to do more. I introduced a long-term solution in April, the Responsible Student Loan Solutions Act, which will set student loans based on the actual cost of financing and administering the program. It will also protect students with a cap. I think that is essential. We have to understand the interest rates might rise to a point where we need to cap them to protect students. It would also allow refinancing, which is something that has not been seriously discussed. We frankly need more time to discuss that. We need the time; let's take the time.

I urge my colleagues to join me. Let's take up and pass the Keep Student Loans Affordable Act. Give students the chance to go to school this fall with a 3.4 percent subsidized interest rate. Give us not only the chance but give us the incentives and give us the marching orders to fix this problem comprehensively.

With that, I yield the floor.

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