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Charting the student loan interest rate proposals

As the Office of Federal Relations continues to track the proposals and progress made on legislation affecting the student loan interest rate, below is a chart highlighting the proposals to date and major proposals.

Options continue to multiply as the July 1 deadline raising the 3.4 percent interest rate to 6.4 percent is quickly approaching. Soon, colleges will begin originating loans for the fall semester not long afterward. Congressional insiders predict that if the rate is allowed to double, Congressional Republicans will likely lose their appetite for addressing the issue because students will not feel the impact immediately.

The many options, and the apparent disagreement among Senate Democrats and the White House, mean that the fate of any successful bill may rest on the House’s ability to pass a measure that will then be amended in the Senate. Further, it puts the Obama administration in the unusual position of being allied most closely with Congressional Republicans, making the some of the most unusual bedfellows.

How is the interest
rate determined?

  • Current law: By Congress. Interest is 3.4% on subsidized Stafford; 6.8% on unsubsidized Stafford; 7.9% on PLUS loans.
  • FY14 President’s Budget Request: 10-year Treasury rate plus 0.93 percentage points for subsidized Stafford loans; plus 2.93 points for unsubsidized
 Stafford loans; plus 3.93 points for PLUS loans.
  • House Republicans (H.R. 1911): 10-year Treasury rate plus 2.5 percentage points for unsubsidized
 and subsidized Stafford loans; 
plus 4.5 points for PLUS loans.
  • Reed and Durbin Bill: 91-day Treasury rate plus a percentage determined
by the Education Secretary to cover administrative costs.
  • Warren Bill: By the discount rate the Federal Reserve charges to banks, at least for one year.

Is the interest rate varied over the life of the loan?

  • Current law: No.
  • FY14 President’s Budget Request: No. Rate varies from year to year for new loans, but is then fixed for life 
of loan.
  • House Republicans (H.R. 1911): Yes.
  • Reed and Durbin Bill: Yes.
  • Warren Bill: No.

Is there an interest rate cap?

  • Current Law: Not addressed.
  • FY14 President’s Budget Request: No.
  • House Republicans (H.R. 1911): Yes. 8.5% for Stafford loans; 10.5% for PLUS.
  • Reed and Durbin Bill: Yes: 6.8% for subsidized Stafford, 8.25% for unsubsidized Stafford and PLUS.
  • Warren Bill: Not addressed.

If a new loan was issued today under this plan, interest rates would be…

  • Current Law: 3.4% for subsidized Stafford, 6.8% for unsubsidized Stafford, 7.9% for PLUS
  • FY14 President’s Budget Request: 2.74% for subsidized Stafford; 4.74% for unsubsidized Stafford; 5.74% for PLUS
  • House Republicans (H.R. 1911): 4.31% for subsidized and unsubsidized Stafford; 6.31% for PLUS
  • Reed and Durbin Bill: Unclear what administrative costs would be.91-day Treasury yield is .04%
  • Warren Bill: 0.75%.