Interest rates on subsidized Stafford loans doubled on July 1 from 3.4% to 6.8% because the U.S. Congress failed to reach an agreement on legislation, CNN reported. As a result, a renewed battle between Democrats and Republicans about who is to blame for a lack of a good plan has also resurfaced.
Congressional Republicans opposed Democratic bills to keep the rates at 3.4%, saying any new costs for government-backed loans had to be paid for with budget cuts in other programs.
Directly before the deadline, negotiators had come up with a plan to offset costs for subsidizing the loan, and extended the rate until July 1.
n May, the House, controlled by Republicans, passed a bill that revamped how interest on student loans is calculated. The House bill "pegged interest rates for government backed student loans to the 10-year Treasury note plus another 2.5%. It passed on a largely party line vote, with just four Democrats backing it," CNN reported.
A bipartisan group of senators introduced a compromise bill at the end of June that was similar to the House bill, but Senate Democrats did not agree on it since it does not include a cap for interest rate should economic conditions change, causing the interest rates to go up.
The Senate is expected to vote on Wednesday whether to begin debate on a one-year extension of the 3.4% rate.
On May 31, President Obama made a speech at the Rose Garden saying that "Higher education cannot be a luxury for a privileged few. It is an economic necessity that every family should be able to afford, every young person with dreams and ambitions should be able to access." The president's plan stipulates rates for subsidized federal student loans would be set every year based on the market plus 0.93 percent, but remain fixed for the life of the loan, Reuters reported.
The plan included a fully funded Pell Grant program that helps low-income students, expand work-study programs and include an income-based repayment option.
"It's time for the president to lead and it's time for him to bring his Senate Democrat leaders together and develop a solution. The House has done its job. It's time for the Senate and the White House to do its job," House Speaker John Boehner said at a Capitol news conference flanked by college age students.
