Tuesday, July 2, 2013

Student Loans - Democrats v. Republicans

Recently you may have heard in the news that the Senate has failed to pass a resolution that would stop subsidized Stafford student loan interest rates from doubling from 3.4% to 6.8%.  The sunset of the College Cost Reduction and Access Act, originally scheduled for this year but then moved forward a year (to 2012), and then extended back again to this year, came with the passing of July 1st while all of Congress was out of session for the holiday week.

And cue the mud-slinging:

And please don't be fooled by the shared hashtag.  These two groups, the Democratic Congressional Campaign Committee (i.e. the Democrats, creating obviously the first picture) and Crossroads Generation (a young-voter-oriented spinoff of Karl Rove's Crossroads GPS, creating the second), have nothing to do with each other.

There are two interesting questions in this debacle: (a) who's responsible for allowing this to happen? and (b) who's really looking out for students anyway?

Question (a) can be answered by taking a look at the votes for the two bills that were introduced in the Senate, S.953 (Democrats' bill, introduced by Sen. Jack Reed, RI) and S.1003 (Republicans' bill, introduced by Thomas Coburn, OK).  The first that was introduced, the Democrats' bill, failed to obtain a supermajority vote, with 52% of voting members affirming for cloture on debate.  The Republicans' bill, introduced a week after the previous, also failed, but obtained only 40% of voting members.  Both bills were voted on during the June 6th session.

The House of Representatives had also passed a bill, H.R.1911, back on May 23rd, by a 221-198 vote mostly along party lines.  This bill was not voted on in the Senate; this bill was also different in its approach to the issue from the Senate Republicans' bill.

So whose fault is it?  Both parties are to blame, if you're of the opinion that a failure to pass either of their own bills is "fault."  It's still true, however, that both parties had bills, and tried to pass them - they're just pissy with each other, like our two parties are wont to do.  And so, the above pictures are actually both wrong (or both right, but I sway toward the former).

Question (b) is perhaps the more salient though.  A party can claim to be on the side of students and tout a bill that suffered from lack of votes from the opposing party as "being obstructed," but if your bill is bad then you don't get to act all righteous.  There were several plans that were submitted (we saw already two in the Senate - in fact three as we'll see soon - and one in the House, as well as a first plan from the White House) to try to fix this rate sunset.

For a bit of background, the interest rates of student loans have historically been set by Congress at constant values.  These newer plans, in an attempt to also decrease our nation's debt, all tie the interest rates on loans to the interest rates on particular US Treasury bills, plus some.  A cap on the amount that student loan interest rates can increase to, and a constant-over-lifetime v. fluctuating-with-market distinction are also components (or not) of these bills as well.  Dylan Matthews at WaPo has provided a very useful breakdown of the bills' effects (larger here), minus the third proposal from the Senate I mentioned before.  To recreate that table with the newer legislation proposed in the Senate:

Treasury Bill Sub. Staff. Unsub. Staff. PLUS Cap Market Var.
Obama 10-year 0.93% 2.93% 3.93% No No
H. GOP 10-year 2.50% 2.50% 4.50% 8.5% Staff, 10.5% PLUS Yes
S. GOP 10-year 3.00% 3.00% 3.00% No* No
S. Dem 3-month ~2.00% ~2.00% ~2.00% 6.8% Staff, 8.25% PLUS Yes
S. Bipart 10-year 1.85% 1.85% 4.40% 8.25% All No

The last plan was a bipartisan proposal sponsored by Sens. Manchin, King, Alexander, Coburn, Burr, Carper, Ayotte, and Isakson, and was introduced to the Senate on June 27th.  Following an attempt by Senator Reed to extend the current student loan rate for yet another year (thwarted by objection from Senator McConnell), Senator McConnell attempted to open up consideration for Manchin's proposed bill; Reed objected in return.  The bill was thus placed on Senate calendar for consideration after the holiday break.

The bill's effects can be seen above with the rest.  Since some of these plans include variations with the Treasury bills so that given loans aren't guaranteed constant rates over their lifetimes, and since numbers are hard to grasp in bulk anyway, let's see if we can graph some of this data to get an idea of whose plan is better for students.  The CBO has projected the Treasury bills' future interest rates, and we will use their baseline figures for such projections.  Dotted series show plans that do not adjust with the market; series with lines show evolving interest rates on existing loans, to match future Treasury bill rates.

Subsidized Stafford Loans:

Unsubsidized Stafford Loans:

PLUS Loans:

Dylan Matthews provided some extra graphs as well, to show accumulated money owed across the decade under a couple plans.  Those graphs help to better illustrate the caveat in these, which is that while the Senate Dem. plan seems to be very much below the rest, it does allow loan interest rates to adjust with the interest rate on the Treasury notes.  This means that your interest increases as time goes on in plans that above show as lines instead of points, because Treasury bill rates increase too.

All the same, the plan put forth by the Democrats in the Senate is the most beneficial to students, and the plan put forth by the House GOP is the most damaging in the mid-term (while the Senate plan appears to be the most in the long term, for Stafford loans).  The compromise bill is, perhaps unsurprisingly, quite smack dap in the middle of everything.

So, what we have is a situation where the Democrats appear to have the students' interests at heart, whereas the Republicans are perhaps more interested in debt reduction.  Sentiments like that displayed by the Crossroads Generation picture above, which appeal to the students' interest, are particularly dishonest IMO: pick a narrative and stick to it.  Better yet, pick a narrative that matches your policy goals, and stick to it.

All the same, these are interests that people are allowed to have their own opinions on.  As a student, I'm more inclined to prefer the lower interest rates.  In somewhat good news as well, while Congress missed their deadline to agree on a bill that would replace the setting 3.4% interest rate, they will still be able to debate further after their holiday break and pass something (perhaps the bipartisan bill, most likely) that can be applied retroactively so that we don't have to pay 6.8% interest rates anyway.

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