Debate continues on how to keep college loans affordable

WASHINGTON -- Congress returns to work this week to take up an issue which has proved frustrating for years, and for which an answer again proved elusive just two weeks ago -- how to keep college loans affordable.

The House and Senate left Washington for a weeklong July Fourth recess without acting on a pending interest rate hike. On July 1, that inaction started costing millions of students, as interest rates on new Stafford loans automatically doubled from 3.4 percent to 6.8 percent. Existing loans would be unaffected. The increase for new loans has left many wondering if Congress will fix the problem retroactively later this summer, as it often does. But since both houses traditionally take the month of August off, this month is the last chance for a legislative remedy before classes resume for the fall semester.

On one side are Democrats such as Sen. Tom Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee, who want to revert the rates back to 3.4 percent and lock it there for at least a year. Furthermore, Democrats want to tie the interest rates to the government's short-term borrowing costs, which would create lower, more stable rates.

Harkin has pledged to lead the effort, but also said it is worth the time to do it thoughtfully.

"Rushing through a shortsighted, long-term proposal that will burden millions of future college students and their families with higher, unrestricted interest rates -- and ask these same students to pay additional interest to reduce the deficit -- is simply not right or fair," Harkin said in late June.

In the House, Rep. Bruce Braley, D-Iowa, has introduced bills the past two years that would lock rates at 3.4 percent for two years. That effort's success is uncertain, however, since Republicans control the lower chamber.

"Iowa college students graduate with some of the highest student debt loads in the nation, and letting student loan interest rates double will put the college dream out of reach for too many Iowa families," Braley told The Gazette last week. "College is a gateway to economic opportunity and the middle class that needs to be kept wide open."

A report from the Project on Student Debt last fall said Iowa students had the sixth-highest average debt at graduation for the class of 2011, at $28,753. Nearly 8 million students across the country are expected to apply for new Stafford loans for the 2013-2014 academic year.

On the other side of the debate are Republicans who want to base the rates on 10-year treasuries, which carry higher interest rates. Many believe this would subject the rates to unacceptable market volatility, however. The debate has created some rare alliances -- the Obama administration is said to prefer the Republican approach, for example.

At the University of Iowa, political science professor Timothy Hagle said it is a safe bet that Congress will fix the situation retroactively, perhaps as soon as this month. He said students with existing loans can breathe a sigh of relief, but students seeking future loans should watch Congress carefully.

"The fact that the increase is for new loans, not existing loans, is very gratifying because a student's current costs won't be going up," Hagle said. "The feeling is that (Congress) will do something, but the question is, what will it be? If it's based on the market, that's a problem. That's why the government took over those loans in the first place, to protect students from market fluctuations."

Estimates vary wildly on how much the rate increase to 6.8 percent would cost over the life of a 10-year loan. Sen. Chuck Grassley, R-Iowa, put the cost at an extra $727. Congress's Joint Economic Committee, however, put the cost at an additional $2,600 over 10 years.

Grassley said the Republican proposal is better because it would lock in the rates similar to a fixed-rate home mortgage. But he also has proposed reforming and simplifying the way rates are described to students and their parents. He envisions uniform, boilerplate letters written in "plain English" and with standardized definitions of financial terms.

"While it is uncertain which proposal will gain final approval, I will continue championing policies that address the exploding growth of college tuition and fees. That includes my work to bring more transparency to college revenue and expenses," Grassley said last month. "Under the current system, many families find it nearly impossible to make an informed decision."

Rep. Dave Loebsack, D-Iowa, said he doubts he would have made it to Congress without a student loan that helped him afford a higher education.

"It is unconscionable that leaders in the House of Representatives have once again let Washington's dysfunction burden our students and middle class families," Loebsack said. "I would not have been able to attend college and would not be where I am today without the availability of student loans and other financial assistance programs."