Let the Market Decide Student Loan Interest Rates


Last summer, debate about student loans reached a fever pitch thanks to a scheduled increase in the interest rate for new subsidized Stafford loans made to undergraduates. As I said at the time, no one wanted to see interest rates double – particularly at a time when one out of every two college graduates is struggling to find a full time job. But we need 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.

When Congress approved legislation last year to temporarily stave off the Stafford loan interest rate increase, my colleagues and I lent our support with the promise that we would use this time to work toward a long-term solution that better aligns rates with the free market. With the Smarter Solutions for Students Act (H.R. 1911), which passed the House of Representatives with bipartisan support last month, we upheld that promise. By simply moving federal student loans to a market-based interest rate, this responsible legislation builds upon a proposal put forth by President Obama earlier this year to prevent Stafford loan interest rates from doubling on July 1st.

[See a collection of political cartoons on the budget and deficit.]

Just like the president's plan, our legislation will apply a market-based interest rate to all Stafford and PLUS loans, ensuring borrowers will be able to take advantage of today's low rates. But unlike President Obama's proposal, the Smarter Solutions for Students Act protects borrowers against higher interest rates by imposing a fair and reasonable cap. Based on current market conditions, H.R. 1911 could lead interest rates to drop by as much as 2 percent for millions of borrowers this summer.

Additionally, the legislation maintains students' ability to consolidate their loans upon graduation and lock in a low fixed interest rate for the life of the loan. And students can still take advantage of existing federal repayment and debt management initiatives, such as the generous income-based repayment programs, loan forgiveness programs and opportunities for deferment or forbearance.

We have an opportunity for bipartisan compromise on this matter – something that is all too rare in Washington. President Obama asked for a long-term, market-based solution and that is precisely what we have delivered with the Smarter Solutions for Students Act. It is now up to the Senate to move forward with its own ideas to solve the problem, so we can come together and send a bill to the president.

Join us for a live debate on student loan rates on Twitter. Tweet using the #studentloans hashtag.

John Kline

About John Kline Republican Representative from Minnesota

student loans
interest rates

Other Arguments

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Making Loans Fair for Students and Taxpayers

No – Making Loans Fair for Students and Taxpayers

Lamar Alexander Republican Senator from Tennessee

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Congress Must Act to Prevent Student Loan Hikes
18 Pts
Playing Politics With Loans Doesn't Help Students

Yes – Playing Politics With Loans Doesn't Help Students

Andrew Kelly Resident Scholar of the Center on Higher Education Reform at the American Enterprise Institute

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Getting the Government Out of the Student Loan Business

Yes – Getting the Government Out of the Student Loan Business

Jay Schalin Higher Education Writer at the John William Pope Center for Higher Education Policy

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