Rates should be set in the market, not on Capitol Hill
by Reps. John Kline and Virginia Foxx
Bipartisan compromise is tough to find in Washington right now — but when there is opportunity for agreement, we owe it to the American people to take action.
In the coming weeks, millions of student-loan borrowers could see their interest rates double from 3.4 percent to 6.8 percent. We're in this predicament because politicians put themselves in charge of setting interest rates, guaranteeing uncertainty for students and more infighting in Congress.
Students deserve a long-term solution that gets Washington out of the business of setting student-loan interest rates. Fortunately, President Obama agrees. In his budget for the next fiscal year, the president offered a plan to tie rates to the free market.
Heartened by the president's proposal, Republicans put together a similar measure, the Smarter Solutions for Students Act, which the House will consider on Thursday. Just like the president's plan, our legislation will apply a market-based interest rate to all federal Stafford and PLUS loans, ensuring borrowers will be able to take advantage of today's low rates.
By tying rates to the market, the Smarter Solutions for Students Act sets a predictable formula for interest-rate calculations, insulated from the politics and posturing of Washington. Additionally, we protect students from high interest-rate environments by imposing a fair and reasonable cap.
Here's why we're shifting away from fixed rates. First, fixed rates function problematically as both a floor and ceiling for borrowers. They sound like a great plan until lower rates become available in the market — something we're seeing today.
Second, administering federal student-loan programs comes with a cost. We readily acknowledge politicians don't have the know-how to pick static interest rates that will work for borrowers and fund student-loan programs without leaving taxpayers on the hook for students' low interest rates.
The Smarter Solutions for Students Act is the product of numerous hearings and discussions with higher-education experts. It's been written in good faith. Despite our best efforts, however, this responsible legislation has already come under fire from some congressional Democrats. These defenders of the status quo are angry that the Smarter Solutions for Students Act will allow interest rates to fluctuate with the market, and claim a better plan is to simply extend current rates for another year or two at a cost of roughly $8 billion. We respect their views, but their plan just passes the buck, once again.
Students deserve better. They shouldn't have to watch Congress hold their interest rates hostage, or see them used as bargaining chips each election year. They shouldn't have to deal with the uncertainty that comes with waiting for Congress to cobble together another temporary fix to keep interest rates in line with the market.
That's what the Smarter Solutions for Students Act is all about. It will put an end to the quick fixes and campaign promises that have failed to strengthen our nation's student-loan system. Our proposal offers predictability, simplicity and the flexibility to take advantage of low interest rates whenever possible. In fact, should this legislation be enacted this summer, most student-loan borrowers will see their interest rates drop as much as 2 percentage points. It's a win for students, and a win for taxpayers.
There is growing consensus in Washington that tying rates back to the free market is the right way forward. Instead of finding excuses to politicize the issue, this should be an opportunity to build on common ground as we look to address the big challenges facing the nation's education system. We hope the administration and our colleagues in the House and Senate will stand by the president's proposal and help us move the Smarter Solutions for Students Act swiftly through Congress and onto his desk.
Rep. John Kline, Minesota Republican, is chairman of the House Committee on Education and the Workforce. Rep. Virginia Foxx, North Carolina Republican, is chairman of its subcommittee on higher education and workforce training.
