New America’s Jason Delisle believes that a no-cost solution to the latest congressional impasse is “hiding in plain site,” and Senators have finally decided to take a look.
While Republicans and Democrats in Congress want to extend 3.4 percent interest rates on federal student loans for another year, they can’t seem to agree on how to pay for it. Delisle, director of our Federal Education Budget Project, has proposed an interest rate plan that he says is not only cost-free, but will reduce the costs of the student loan program by $52 billion over 10 years. Yesterday, Senators Tom Coburn (R-Okla.) and Richard Burr (R-N.C.) introduced the Comprehensive Student Loan Protection Act, an interest rate reform bill based on Delisle’s proposal.
The bill, following the proposal Delisle first mentioned two weeks ago, pegs fixed interest rates on all newly-issued federal student loans to the 10-year Treasury rate plus a 3.0 percentage markup to account for costs, making the interest rate on loans 4.66% this fall (a figure that is constantly adjusted based on Treasury note interest rates). According to Delisle, “linking fixed student loan interest rates to the rate on ten-year U.S. Treasury notes would allow undergraduates to leave school with less debt than even a permanent extension of the 3.4 percent interest rate.”
Following the table below, you can compare how undergraduates who borrow Subsidized and Unsubsidized Stafford loans each year will fare under the original 3.4 percent proposal and under Delisle’s market-based fixed rate proposal.
While the interest rate on the 10-year Treasury note fluctuates a bit (citing 4.75% compared to the aforementioned 4.66%), this loan comparison shows that a student borrowing a maximum amount of loans in all fours years of schooling will still pay less per month under Delisle’s proposal.
For struggling students and taxpayers alike, the point is clear: Delisle’s proposal could mean great things for the future of student loans without any blow to the budget if successfully passed through Congress by Senators Coburn and Burr.