Kline’s Smart Solution Is Higher Interest Rates

QUERY : If you are one of the 184,940 Minnesota undergraduates who participate in the Federal student loan program, would you want the “banker” to charge 2.5% handling fee … or a handling fee that is less than 1% ? As you ponder that question, be advised that students in Minnesota graduate with an average of $29,793 in debt, which ranks third highest in the nation.

John Kline’s (R-MN-02) press release announcing H.R. 1911 The Smarter Solutions for Students Act had been approved by the Education and Workforce Committee by a vote of 24 to 13:

The committee has taken an important step forward in the fight to strengthen the nation’s higher education system. Not only have we approved a proposal that will help students access the information they need to choose the right college, we also advanced legislation based on the president’s own proposal to tie student loan interest rates back to the free market,” said Kline, the Chairman of the House Education and the Workforce Committee.

Hmmm … did you catch that “we also advanced legislation based on the president’s own proposal” …. “based on” is not exactly means that it is the President’s suggestion. In fact, it is significantly different in terms of how much students (and/or parents) will pay in interest.

OK … let’s get a little history.
In 2007, the College Student Relief Act of 2007 was approved with Republicans voting in favor 124 to 71 and would gradually reduce (over five years) the interest rate on subsidized Stafford loans provided to undergraduate students from the fixed interest rate of 6.8% to:
July 1, 2007 – July 1, 2008: 6.12%
July 1, 2008 – July 1, 2009: 5.44%
July 1, 2009 – July 1, 2010: 4.76%
July 1, 2010 – July 1, 2011: 4.08%
July 1, 2011 – January 1, 2012: 3.40%
Last year, when Mitt Romney agreed that rates should not rise, Chairman Kline relented and agreed for the 3.4% interest rate to be extended through June 30, 2013.

Oops … forgot to mention one important fact … John Kline opposed the College Student Relief Act of 2007.

Fast forward to now … President Obama included in his FY2014 budget request student loan rates that would be aligned with interest rates for 10-year Treasury bonds plus 0.91% to compensate for processing. So that borrowers can afford their loan payments, President Obama envisions expanded income-based repayment program … thus borrowers’ repayment would be factored based to their discretionary income and forgives the debt after 20 years.

Chairman Kline’s proposal would align the interest rate for federal student loans to the interest rates on 10-year Treasury notes — thus, the rate would vary with the market. But it also varies over the life of the loan — borrowers’ interest rates, and monthly payments, would change from year as they repay the loan. A true variable rate and if the economy improves and the Fed eases off the current low interest rates, graduates could be faced with yearly increases in repayment amounts. Under Chairman Kline’s plan, the loan has no forgiveness feature.

Under Chairman Kline’s The Smarter Solutions for Students Act, Stafford loan interest rates are calculated each year based on the 10-year Treasury Note, plus 2.5 percent and plus 4.5 percent for PLUS loans.
FYI – PLUS loans are federal loans for graduate or professional degree students and parents of dependent undergraduate students.

OK … pretty simple, “we also advanced legislation based on the president’s own proposal” …. except Chairman Kline’s plan makes money for the US Government.

Chairman Kline’s bill is so slanted that an analysis from the non-partisan Congressional Research Service (CRS) determined that Chairman Kline’s bill would increase student debt and leave students worse off than if these interest rates were allowed to double on July 1. The CRS report considered three options : if the 3.4% fixed rate was extended until Chairman Kline’s committee revised the Higher Education Act; if the rate returned to the 6.8% fixed rate as it is scheduled to do; and, Chairman Kline’s proposal.

Borrower of Both Subsidized and Unsubsidized Stafford Loans,
4 years of borrowing

If Borrower (B) would have borrowed $19,000 in Subsidized Stafford Loans and $8,000 in Unsubsidized Stafford Loans, for a total of $27,000, but with current interest rates permanently extended, he or she would pay an estimated total of $7,033 in interest, and the monthly payment would be $296.

Under current law, Borrower (B) would have borrowed $19,000 in Subsidized Stafford Loans and $8,000 in Unsubsidized Stafford Loans, for a total of $27,000. These loans would have a fixed interest rate of 6.8%.Borrower (B) would pay a total of $10,867 in interest, and the monthly payment would be $328.

If Borrower (B) borrowed the same amount, but under the terms proposed in H.R. 1911, he or she would pay an estimated total of $12,374 in interest, and the monthly payment would range from $337 to $340. Under H.R. 1911, Borrower (B) would pay $1,508 (13.9%) more in interest over a 10-year repayment period, and the monthly payment would be up to $12 (3.7%) more per month.

That’s Chairman Kline’s Agenda … with student debt a major problem, his “Smart Solution” is to charge the students more … putting them deeper into debt … and the monies raised by the debt can be used to offset for “tax reform”.

Funny thing is that Senator Al Franken, Representative Keith Ellison and Representative Betty McCollum have held open forums with Minnesota students to discuss student debts … and the message was clear — “It’s just incredible how many students and families are struggling to pay for college—I heard it firsthand from students last week in Minnesota,” said Senator Franken. “Students in Minnesota graduate with an average of $29,793 in debt, which ranks third highest in the nation. The absolute last thing these hardworking students need is for the problem to get even worse by letting the interest rate on their student loans rise.”

Follow-up QUERY : Has John Kline held any meetings with Minnesota students and families to hear their concerns ?

Yep, John Kline — the Voice OF Washington.

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