Congress is perilously close to running out of time in preventing student loan rates from doubling, as the Senate was unable to agree on the best course of action on Thursday. With the failure of Senate measure 953 to gather the 60 votes it needed to extend the debate, Congress now has 25 days left to act before loan rates double for future students.
Two bills were put before the Senate Thursday which offered solutions to the student loan mess. Democrats offered a plan that would freeze rates at their current 3.4 percent for the next two years, while Congress had more time to negotiate a more thorough solution. Republicans proposed a plan similar to one by the House GOP which would stop the doubling of rates and instead tie them to the 10-year treasury note. Senate Majority Leader Harry Reid claims the Republican plan would cost future students $13-14 billion. Both plans failed to achieve enough votes.
The President supported the Senate Democrat’s plan, despite previously offering a plan similar in structure to the one put forth in the House. Under the Republican plan, rates would rise to 5.5 percent next year.
The only bipartisan agreement thus far has been the accusations of political gamesmanship by both sides. According to Democrat Patty Murray, the vote Thursday represented “another example of how out of step Republicans in Congress are with the struggles of all of our American families today.”
Senator Lamar Alexander (R-Tenn.) compared the vote to a circus: “This is like the opening act at the circus. Hopefully, the main event will attract some senators who are willing to conduct this in a grown-up way.”
Student loan debt in the U.S. now exceeds $1 trillion, with the federal government being the chief lender. Opportunities for small lenders have faded as only the largest of financial institutions are able to compete with the government in the lending game. Washington accounts for 85 percent of all student loans.
One analyst, Amy Crews Cutts, chief economist at the credit agency Equifax, has pointed to the risks of government-dominated markets.
“Taxpayers are looking at a much riskier portfolio than a private lender would support. It’s risky because of the volumes. The government stepped in during a crisis to make sure those funds would be available. But we’ve over-stimulated that part of the market without the quality of underwriting you need,” she said.
The White House said it was willing to work with Congress on a long-term solution to fixing loan rates after Thursday’s votes.
President Obama has also vowed to veto the House Republican plan.
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