Washington –- President Obama likes it, as do top congressional leaders, but Connecticut’s Democratic senators -– Richard Blumenthal and Chris Murphy -– say they can’t sign on to a deal that would reverse a sharp rate hike in a popular student loan.
“It’s hard for me to get my head wrapped around the idea that the federal government is going to continue to make millions of dollars in profit from the student loan program,” Murphy said. “
Blumenthal is even more critical.
“This legislation fails future generations of young people, profits off the backs of students, and adds irresponsibly to the $1 trillion of already crushing student loan debt,” he said in a statement.
Interest rates for Stafford subsidized loans doubled to 6.8 percent on July 1 when a law that had kept that rate low expired.
Democrats who wanted to freeze the rate at 3.4 percent, and Republicans who thought the loan should be tied to market rates, disagreed on what to do to stop the hike.
So a bipartisan group of senators took the matter into their own hands last week, crafting a compromise that would tie interest rates to the 10-year Treasury bill, plus a percentage added on.
Rates would remain fixed for the life of the loan. But each time a student took out a new loan, it would probably be at a higher rate.
For the next few academic years, the projected interest rates under the compromise would be lower than the current rate of 6.8 percent. For the coming year, undergraduates would lock in an interest rate of 3.86 percent, with graduate students having a rate of 5.41 percent.
But those rates are expected to rise as interest rates climb.
The Congressional Budget Office said the deal could bring the federal government an extra $715 million over the next decade, with most of that money coming in later years when rates are expected to increase.
Blumenthal said he could not support the deal’s projected increase in rates.
“It provides variable low teaser rates now in exchange for unconscionably high rates down the road,” he said.
The Senate was expected to vote this week on the student loan deal, followed by the House. But Blumenthal and Murphy are among a group of Democrats who don’t like the proposed plan and are attempting to change it, slowing its path to a vote.
The White House on Tuesday tried to pressure balky Democrats. It put out a fact sheet that said the student loan deal would save a “typical” undergraduate student in Connecticut $1,527 over the life of his or her Stafford loans and Education Secretary Arne Duncan held a press conference urging quick approval of the deal.
Although he introduced a bill to freeze rates at 3.4.percent, there’s no need to sell Rep. Joe Courtney, D-2nd District, on the plan negotiated in the Senate.
“We’re now in sudden death overtime. I was with families on Saturday whose kids were already packing for school,” he said.
Mona Lucas, director of student financial services at the University of Connecticut, said she also supports the plan fashioned by the bipartisan group in the Senate.
“We’re just pleased that there’s some compromise on the table,” she said.
Lucas said students would take out Stafford loans at any interest rate because they need the money to pay for college. But she expected the young borrowers to be more concerned with the debate over student loans in Washington.
“I’m surprised we have not heard from more students,” Lucas said.