On July 1, the interest rate on many federal student loans is set to double from 3.4 to 6.8 percent. This artificial rate hike would result in higher costs for the millions of students who will borrow money to pay for college this year. The House of Representatives has passed a common-sense plan that keeps the interest rate from doubling and strengthens the federal student loan program.
A college education can help open doors to more job opportunities and earn a higher income. However, it is tougher than ever for students and families to afford college and make ends meet. Seventy percent of students enrolled in four-year public and private colleges and universities in Pennsylvania will accumulate debt to pay for school, according to the Project on Student Debt. Across Pennsylvania, the average loan debt is $29,959 per student, placing our Commonwealth second in the organization's ranking of student indebtedness.
Many young Western Pennsylvanians will start college this year. At the University of Pittsburgh, more than six out of ten students will take out loans to help pay for their education. When they graduate, their average debt burden will exceed $26,600.
Congress approved legislation in 2007 that arbitrarily and temporarily reduced interest rates from 6.8 to 3.4 percent on new subsidized Stafford Loans for undergraduate students. This rate reduction was set to expire after four years, but Congress passed a one-year extension last year. While well intentioned, these measures did not provide any long-term solutions to students and parents in Western Pennsylvania and around the nation. Politics should not be used to set interest rates.
In just days, the interest rate on new subsidized Stafford Loans will double. The Smarter Solutions for Students Act, which passed in the House with my support, protects folks from the politics and posturing of a broken Washington, D.C. by removing Congress from the business of deciding federal student loan interest rates. Instead, the House plan ties interest rates for Stafford and PLUS loans to the ten-year Treasury note, similar to a plan President Obama included in his budget for the 2014 fiscal year.
The House plan would reduce rates for most borrowers. Should President Obama and the Senate join the House in adopting this legislation, federal student loan borrowers could see their interest rates drop by as many as two percentage points from the rate that will take effect on July 1.
Importantly, the interest rate resets each year to ensure that borrowers have an opportunity to consolidate and take advantage of low interest rates when they are available. The House plan also protects students against high interest rates by imposing a reasonable cap.
Meanwhile, the Senate has failed to pass a single bill to prevent the interest rate from doubling. My colleagues and I recently sent a bipartisan letter to Majority Leader Harry Reid and Minority Leader Mitch McConnell urging them to take action.
With just days before the interest rate doubles, it is critical that the Senate and President Obama join the House in taking action to protect students and parents.