Student loans: Tester supports extension of lower interest rates
Montana Democratic Sen. Jon Tester echoed President Barack Obama’s student-loan sentiments Wednesday, encouraging Congress to act soon to prevent interest rates from doubling on July 1.
Congress in 2007 voted to lower the student interest rate for subsidized Stafford loans to 3.4 percent for undergraduate college students. That legislation expires July 1 and interest rates will spike to 6.8 percent if Congress fails to act.
“Freezing interest rates at their current level makes college more affordable and lessens the financial burden students will have to pay back once they graduate,” Tester said during a media teleconference Wednesday.
Subsidized Stafford loans are the most common form of student loan in the country. At the University of Montana, about 6,400 undergraduate students would find themselves paying about $1,000 more in yearly interest payments for the life of their loans, said Kent McGowan, director of financial aid.
The average student in the United States graduates college with $25,000 in student loan debt.
While both political parties seem to agree that maintaining student loan interest rates at their current level is important, finding a way to pay for it is the sticky part.
Tester urged his fellow senators to find a solution that doesn’t shift the burden back to other college students and also doesn’t increase the national debt.
One proposal put forth by Senate Democrats would keep interest rates at their current level by closing a tax loophole. The proposal would require so-called “S” corporations with three or fewer shareholders and who declare income of at least $250,000 annually to pay payroll taxes. That plan would generate the $6 billion a year needed to hold steady interest rates on subsidized Stafford loans for the next year.
Early Wednesday, Tester had not yet seen the legislation, and therefore could not say whether he supported the idea. However, initial reports from his staff are that it’s “a reasonable bill,” he said.
Tester is in a battle to keep his U.S. Senate seat from challenger Republican Rep. Denny Rehberg.
In a statement released on Wednesday afternoon, Rehberg said he could support a plan for maintaining the student loan interest rate at its current level, but only if it’s a “fiscally responsible effort.”
“It’s hypocritical for the big-spenders in Washington to decry an increase in student loan rates while saddling the very same graduates with an additional $5 trillion in national debt,” Rehberg said in a released statement.
Tester also emphasized the need to pay for the increase without adding to the national debt. This should not be a partisan issue, Tester said, pointing to both Obama’s and Republican presidential front-runner Mitt Romney’s agreement on keeping student loan interest rates down.
“This is too important, as are a lot of other things, to turn into a political tool,” Tester said.
Students are making decisions about financing their college educations now, which is why Tester hopes the Senate will take up the issue after lawmakers return from the May recess.