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A bipartisan student loan agreement I announced this week with several colleagues is terrific news for about 202,000 Tennessee borrowers who will be taking out nearly $1.8 billion to help pay for college costs next year.
On July 1, interest rates for 30 percent of all new government loans for college students doubled – from 3.4 percent to 6.8 percent. After two weeks of what you might call the opening act of the circus, with some Senate Democrats arguing for a short-term political fix, we finally had a breakthrough in which a bipartisan group of five senators and I introduced the Bipartisan Student Loan Certainty Act. If enacted into law, it would lower interest rates for all students borrowing money for college this year.
The Bipartisan 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 2.05 percent for undergraduate loans, 3,6 percent for unsubsidized graduate loans, and 4.6 percent for PLUS loans (to parents and graduate students). Other elements of the agreement are as follows: Rates on every student loan made after July 1 will be reduced from the 6.8 and 7.9 percent rates that are currently fixed in the law.
All undergraduate loans will have the same rate, which this year is 3.86 percent, and will remain fixed for the life of the loan. The plan is simpler because all undergraduate loans – which are two-thirds of all student loans – will have the same low rate.
This plan to base interest rates on the market is fair to taxpayers and fair to students. The resulting interest rates for loans taken out this year, after July 1, 2013 would be 3.86 percent for all loans for undergraduate students – both those subsidized and unsubsidized by the federal government.
These rates would apply retroactively to newly issued loans taken out after July 1, 2013. The interest rate would be fixed over the life of the loan to provide borrowers certainty to plan for the future. Additionally, this bill protects against the threat of unforeseen circumstances by establishing caps on the interest rates.
The Congressional Budget Office has determined this legislation would save taxpayers $715 million over ten years. And the idea behind this legislation is similar to legislation the Republican U.S. House of Representatives passed, and to a proposal the president made in his budget.
Our solution is realistic because it’s market based, which means it’s based on what it costs the government to borrow money. And since the rates are fixed for the life of the loan, our proposal provides certainty to students and parents.
Finally, the plan is a long-term solution that will end the annual political saga of members of Congress jockeying for position to solve the student loans problem.