Senator Collins Supports Bipartisan Student Loan Compromise

            WASHINGTON, D.C. – U.S. Senator Susan Collins is supporting a bipartisan plan, authored by several of her colleagues including Senator Angus King (I-ME), that would prevent student loan interest rates from doubling and provide a permanent solution that would lower and fix interest rates for all newly issued student loans.

         Senator Collins has cosponsored The Student Loan Certainty Act, a compromise bill that closely mirrors the President's reform proposal.  This bill would require that, for each academic year, subsidized and Unsubsidized Undergraduate Stafford loans be set to the U.S. Treasury 10-year borrowing rate plus 1.85%.  If a new loan were issued today, the interest rate would be 3.66%, which is less than the current rate of 6.8%. 

        All newly issued Graduate Unsubsidized Stafford loans would be set to the U.S. Treasury 10-year borrowing rate plus 3.4%; and plus 4.4% for PLUS loans. The interest rate would be fixed over the life of the loan and the cap on interest rates for consolidated loans would remain at 8.25% as under current law. 

       The Congressional Budget Office has determined this legislation would reduce the deficit by $1 billion over ten years.

       “Congress and the President must act to address the doubling of interest rates on these student loans,” said Senator Collins.  “Unfortunately, today, the Senate is set to consider a partisan plan that is not sufficient and would only provide a temporary solution.  I applaud Senator King for working with a bipartisan group of our colleagues to come up with a permanent fix that would lower interest rates for all students, and I urge Senate leaders to bring this proposal to the Senate floor immediately.

        “Education plays a vital role in opening the doors of opportunity to all Americans, but the rising cost of a college education threatens to close those doors. Having worked at Husson University in Bangor, I know first-hand how critical student loans and Pell grants are for many Maine families, particularly for the most economically disadvantaged students. An increase in student loan interest rates could be financially devastating to so many students throughout this nation, and that is precisely why we should vote on this bipartisan plan today.”

Background:

The bipartisan Student Loan Certainty Act provides a long-term fix for all student loans while preventing rates from doubling on subsidized loans. This bill would save students $8.8 billion in 2013 and more than $36 billion in the next four years by giving students access to the lowest rates possible, allowing them to take advantage of low borrowing costs when everyone else in the economy can borrow cheaply. Most important, this bill would strengthen borrower protections by reinforcing the 8.25% interest rate cap on consolidation.

Four out of every five students with subsidized Stafford loans take out other federal loans with rates at 6.8% or 7.9%—a one-year extension of the subsidized rate leaves these other rates at unacceptably high levels. We must put aside politics and act now to find a real, long-term solution that ensures access and affordability for all students seeking higher education.

The Bipartisan Student Loan Certainty Act Summary

•         Strong Borrower Protections:

  o   Strengthens the 8.25% Consolidation Cap: Borrowers can consolidate all of their federal loans with a rate that is either a) the weighted average of the loans or b) a maximum of 8.25%. This bill requires the Department of Education to remind students in a clear and easy-to-understand way of their consolidation options.

       o   Repayment Caps: Income-based repayment allows students to reduce their monthly payment based on their ability to repay and after 20-25 years, any remaining debt is forgiven.

•          Undergraduate Subsidized and Unsubsidized Stafford  Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 1.85% to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.

  o   If a new loan was issued today, the interest rate would be 3.66%.

•          Graduate Unsubsidized Stafford Loans: Sets the interest rates on new loans to the U.S. Treasury 10-year borrowing rates, plus 3.4% to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.

      o   If a new loan was issued today, the interest rate would be 5.21%.

•         PLUS Loans: Sets the interest rates on all new loans to the U.S. Treasury 10-year borrowing rates, plus 4.4% to offset the costs associated with defaults, collections, deferments, forgiveness, and delinquencies.

       o   If a new loan was issued today, the interest rate would be 6.21%.

###