Loan interest rates add up to a high-stakes debate for Montana college students and their families.
Students in this state borrowed roughly $237 million last academic year, according to Ron Muffick, director of student financial aid for the Montana University System. About $230 million of that borrowing was in federal student loans.
Much national attention has been directed to the subsidized student loan rate, which doubled on July 1 from 3.4 percent to 6.8 percent because members of Congress couldn’t agree on new legislation. However, Muffick says 83 percent of Montana students who get federal loans get nonsubsidized loans or a combination of subsidized and nonsubsidized loans. They were already incurring interest at 6.8 percent.
This is why the bipartisan compromise bill that passed the Senate Thursday would bring great relief to Montana students. The Senate bill proposes to cut the undergraduate student loan interest rate to 3.8 percent for the upcoming academic year – for both subsidized and nonsubsidized loans.
Under the compromise, student loans made after next year would have an interest rate tied to the rate on 10-year Treasury bonds, plus 2.05 percent. The Senate bill proposes caps on interest rates, but they could still rise to 8.25 percent for undergraduates and 9.5 percent for graduate students.
According to the Congressional Budget Office, the compromise bill would pay for itself and is projected to generate a profit for the government of $715 million over the next 10 years.
Shortly after the Senate vote, House Speaker John Boehner said the Senate compromise is consistent with a bill the House passed in May and he pledged, “The House will act expeditiously.”
Rep. Steve Daines, R-Mont., previously voted for the similar House bill. Contacted Friday, Daines’ spokeswoman said, “He is still looking at the Senate proposal to ensure its reforms are adequate, but is encouraged by the Senate’s willingness to embrace market-based solutions that will provide students with long-term certainty.”
The Senate compromise is clearly a short-term victory for students and the American economy that increasingly requires skilled workers. However, those who value access to higher education also realize that the potential doubling of borrowing costs in future years could be a drag on the economy. Congress will need to debate rates again if future increases threaten to price good students from low- or middle-income families out of the college market.
First, Congress must pass this 2013 legislation to avert the present crisis. Chances for compromise looked good at the weekend. Few issues in Washington, D.C., garner such optimism these days. By recent standards, the Student Loan Certainty Act is a great victory.
Montana Democrats Max Baucus and Jon Tester voted for it as did Wyoming Republicans Mike Enzi and John Barrasso. We call on their House counterparts – Daines and Cynthia Lummis, D-Wyo. -- to support the bill, too.
Loan interest rates are just one factor in college costs. Tuesday’s Gazette opinion will address other factors that can make college more affordable for Montanans.
As Baucus said after the Senate vote, “Over the long term, we need to continue working to make college affordable so all Montana students can get the education they need to land good-paying jobs in our state.”