(WASHINGTON, D.C.) – U.S. Senators Tom Coburn, M.D. (R-OK), Richard Burr (R-NC), and Lamar Alexander (R-TN) today introduced the “Comprehensive Student Loan Protection Act,” a bill to provide a permanent solution to the problems created by temporary, arbitrary interest rates on federal student loans. The bill requires that, for each academic year, all newly-issued Stafford, Graduate PLUS, and Parent PLUS loans be set to the U.S. Treasury 10-year borrowing rate plus 3 percentage points. It directs any remaining savings to the Treasury for the purpose of deficit reduction.
“Moving to a market-driven approach will benefit both borrowers and taxpayers in the long-term,” said Dr. Coburn. “Temporary fixes require annual patching and do nothing to solve the real problem. This bill provides a sustainable solution by eliminating arbitrarily dictated rates formulated by Washington politicians.”
“As we have seen in a multitude of issues in Washington lately, stop-gap measures have been the norm, but one thing that is consistent among them is that short-term fixes are rarely the answer to the problem,” Senator Burr said. “Not only will this bill bring loan payments down for students, but it will also provide a long-term solution to this issue.”
“This proposal is fairer to all students who are borrowing taxpayer dollars to continue their education,” Alexander said. “Instead of short-term, expensive fixes that only help a few students who have federal loans, such as the one Congress passed last year, this bill will tie all interest rates to the market through a simpler, fairer system that lowers costs for students who take out federal loans to pay for college next year and saves taxpayer dollars.”
In 2012, Congress approved a one-year extension of 3.4% interest rates for subsidized Stafford loans at a cost of nearly $6 billion, which is set to expire on July 1, 2013. If left untouched, rates will double from 3.4% to 6.8%.
The Congressional Budget Office included this proposal in its recent budget options, providing potential savings of $21 billion over ten years. The “Comprehensive Student Loan Protection Act” applies to all loans and would lower costs for most borrowers—including those who qualify for the maximum Subsidized Stafford at 3.4 percent.
Coburn and Burr introduced similar legislation in the 112th Congress.
Additional information here.