As Congress goes home, interest on student loans set to double


WASHINGTON, D.C. — U.S. senators headed home Thursday for a holiday recess without passing a bill that would prevent interest rates from doubling on student loans next week.

Last year, Democrats used the looming increase in the cost of student loans to great political effect, pressuring Republicans in an election year and rallying young voters in support of President Barack Obama’s campaign.

Now, as a temporary extension of discounted interest rates is set to lapse, Democrats are at odds with one another over the issue, with the party’s leaders privately grumbling about a White House proposal nearer to Republicans’ solution than their own.

So Republicans are happily turning the political heat on Democrats.

“Interest rates on student loans are about to double because the president and Senate Democrats won’t resolve this impasse,” said House Speaker John A. Boehner, R-Ohio.

The division among Democrats was evident at two news conferences Thursday.

In one, a bipartisan group detailed what they called a compromise plan that would bridge differences in market-based plans passed by the House, proposed by Senate Republicans and initially offered by Obama in his budget.

The other was attended only by Democrats, who for the second time proposed simply extending current rates for a year, the favored approach of the Senate’s leaders.

At a time when lawmakers face pressure to cut costs and reduce the deficit, the loan issue has invited an ideological debate over whether student borrowing should be a moneymaker for the federal government.

There is a lot of money at stake.

A report from the Joint Economic Committee shows that student debt has risen significantly, from $550 billion in late 2007 to about $1 trillion in the first quarter this year. The same report said that without congressional action, the higher Stafford interest rates would add $4,500 to the cost of a four-year college degree.

“The fundamental issue is whether the United States government should be making a profit off our students,” said Sen. Elizabeth Warren, D-Mass. “We should not be burdening our students further.”

But Sen. Angus King, I-Maine), one of the authors of the compromise plan, said federal student loans were not intended to be a subsidy program. “What we tried to do is design a system that was both fair to taxpayers and to students,” he said.

The sticking point for some Senate Democrats is that some of the market-based proposals would bring in hundreds of millions in new revenue at the expense of lower and middle-class students. The House Republican plan, for instance, would generate $4.7billion over 10 years.

At one press conference, Sen. Tom Harkin, D-Iowa, chairman of the Senate education committee, pointed to a chart criticizing the compromise plan, singling out one of its Democratic co-sponsors, Sen. Joe Manchin III of West Virginia.

“This is classic bait and switch. One or two years of low interest rates, then they sock it to you,” Harkin said.

He and the other sponsors said the one-year extension would give lawmakers ample time to consider a range of proposals to alter loan rates in concert with the reauthorization of the Higher Education Act.

After Democrats took control of both the House and Senate in 2007, Congress voted to lower the interest rates gradually on subsidized Stafford loans from 6.8 to 3.4 percent.