Fact Sheets

THE PROBLEM:

In 2007, the Democrat-led Congress approved legislation to temporarily phase down the interest rate on subsidized Stafford Loans made to undergraduate students from 6.8 percent to 3.4 percent over four years. Once the law expired in 2012, the interest rates would jump back to 6.8 percent. Despite a one-year extension of the lower interest rate, students and families could see interest rates for new subsidized student Loans double on July 1, 2013 unless a long-term solution to the problem is enacted. 

THE SOLUTION:

It’s time to move away from a system that allows Washington politicians to use student loan interest rates as bargaining chips, creating uncertainty and confusion for borrowers. That’s why House Committee on Education and the Workforce Chairman John Kline (R-MN) and Subcommittee on Higher Education and Workforce Training Chairwoman Virginia Foxx (R-NC) introduced the Smarter Solutions for Students Act (H.R. 1911), legislation to move all federal student loans (except Perkins loans) to a market-based interest rate.  This commonsense proposal is similar to a plan put forth in President Obama’s Fiscal Year 2014 budget request. The bill recently passed the committee with bipartisan support. 

THE SMARTER SOLUTIONS FOR STUDENTS ACT:

• Calculates subsidized and unsubsidized Stafford loans using a formula based on the 10-year Treasury Note plus 2.5 percent. 
    
• Calculates graduate and parent PLUS loans using a formula based on the 10-year Treasury Note plus 4.5 percent. 
    
• Resets student loan interest rates once a year, allowing rates to move with the free market and ensuring borrowers can take advantage of lower interest rates when available.
    
• Protects borrowers in high interest rate environments by including a 8.5 percent cap on Stafford Loan interest rates and a 10.5 percent cap on PLUS loans.
    
• Provides stability for low- and middle-income students working to finance their postsecondary education, and prevents future uncertainty about whether Congress is going to act in time to change the interest rate.

By taking politicians out of the interest rate equation, the Smarter Solutions for Students Act will strengthen federal student loan programs and serve the best interests of both borrowers and taxpayers.