WASHINGTON - House Republicans are willing to give President Obama a rare win, the chairman of the Education and Workforce Committee said Thursday in outlining a deal that would let college students avoid a costly hike on their student loans.
Rep. John Kline, R-Minn., told The Associated Press that his GOP-led panel would support an idea included in Obama's budget proposal that links the interest rates on student loans to market rates. To calm fears of runaway interest rates, Kline said his proposal also would include a cap on interest rates that was not part of Obama's proposal.
"At the end of the day, we believe that what we've done with this bill is make sure that the borrowers, whether they're graduates or undergraduates or parents, can take advantage of the lower rates when they're available," Kline said.
Kline's proposal also would end different interest rates for subsidized and unsubsidized undergraduate loans. Both would pay the same rates, which would be linked to 10-year Treasury notes.
Federally subsidized Stafford student loan rates will double on July 1 unless Congress steps in. During the recession that began in December 2007, Congress temporarily lowered the interest rates, bottoming out at 3.4 percent to help struggling students.
The rates were scheduled to return to the prerecession level of 6.8 percent last July 1, before Congress and the White House agreed during the presidential campaign to a one-year reprieve.
Basing student loans on 10-year Treasury note rates would, at least for now, offer a deal to some students. For instance, students taking Stafford loans would pay 2.5 percent above the Treasury 10-year rate. That would translate to 4.3 percent for undergraduate loans - an increase from the 3.4 percent now paid by students who receive a subsidized Stafford loan and a decrease from the 6.8 percent for other students who do not receive a subsidized Stafford loan.
For other loans typically taken by parents or graduate students - called PLUS loans - the rates would be 4.5 percentage points higher than the rate on the 10-year Treasury note.