President Obama has threatened to veto a Republican student loan plan that will switch the interest rates to a market-based system, as he believes that this will cause more uncertainty for students and families.
A leading Democrat on the House Education Committee, George Miller from California, explains why this plan isn’t a good solution, in saying, “On the contrary, it costs students and families more than if we did nothing. Congress should work together to address the increased cost of a higher education and rising debt burden, not pull a bait-and-switch and make college more expensive.”
Currently, the interest rates of subsidized and unsubsidized Stafford loans are set (and recalculated each year) by the government, and come July 1, the rates will double from 3.4 to 6.8 percent. While both Republicans and Democrats agree that this shouldn’t happen, they aren’t able to decide how this should be tackled.
While Democrats want to freeze the rates until 2015, the Republican-led House Committee on Education and Workforce have pushed the bill and awaits a decision to be approved or dismissed once a vote is taken. While this decision is pending, it’s pretty clear that the Democrat-led Senate will not approve of this bill, as they wish to keep the rates as they are for another two years.
In direct contrast to Obama’s plan, which offers a fixed rate for the entire duration of the loan, the Republican loan plan will see a change in rates as the market rate fluctuates over the years. This would result in more pressure on familiar and student to pay the deficit as the years go by, making it far more difficult to get a college education in the United States.
Yet it must be pointed out that according to research by the Congressional Research Service, following the Republican plan would mean that a student would pay $14,430 in interest as opposed to $12,598 is the rates double or $7965 is they don’t.