Democrats Divided on Student Loan Interest Rates

GOP and Obama agree, but Democrats cannot unilaterally agree.

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Democrats have mostly walked in a straight line behind the Obama Administration, rarely showing party divisions which have plagued the GOP in recent years. But this week when it comes to student loans, the White House and Republicans are united, and it's Senate Democrats who are divided.

[READ: Deal on Student Loans Would Set Cap]

"It is really interesting that the emphasis around here is always around Republicans being divided. In this case, [Democrats] are divided right down the middle," says Sen. Bob Corker, R-Tenn. "It's interesting that the White House, House Republicans and Senate Republicans and some Democrats are united around this issue."

Majority Leader Harry Reid, D-Nev., is expected to bring a bipartisan student loan rate bill to the floor this week, but a coalition within his rank-and-file is still unhappy with the plan.

The bill, which would retroactively lower interest rates that doubled from 3.4 percent to 6.8 percent at the beginning of July, would tie undergraduate, graduate and PLUS loans - something parents take out on behalf of their children - to Treasury notes plus and added percentage. The congressional budget office estimates the plan would lower the deficit by $715 million over the next decade.

[ALSO: Student Loan Interest Rate of 6.8 Percent Wasn't Always So Scary]

For undergraduates, Stafford loans will be offered at 3.86 percent. Graduate students could take out loans at a 5.4 percent interest rate. And parents could access loans on behalf of their undergraduate children at 6.4 percent this fall.

The plan is similar in principle to one the House passed in June. The White House has urged the Senate to move quickly on the bill, which it estimates will save the average borrower $1,500.

But Sen. Bernie Sanders, I-Vt., a member of the Senate committee with oversight on education matters, said this week the White House is being "disingenuous" in its promise that student loan interest rates will remain low under the compromise legislation.

"The White House is being disingenuous and is trying to sweep under the rug big increases in interest rates for students and parents in the near future," Sanders said in a statement.

Sanders argues that as the economy grows, interest rates will balloon. He cites a CBO projection that by 2018, student loan interest rates for undergraduates will be at 7.25 percent and students in graduate school will take out loans at 8.8 percent.

[MORE: Tempers Run High in Congress Over Student Loans]

Many in the Democratic caucus would like to see the student loan rates returned to the 3.4 percent interest rate students have enjoyed since 2011, but was recently raised due to congressional inaction. Some, like Sen. Elizabeth Warren, D-Mass., have advocated going even farther. She is pushing for legislation that would offer student loans at a .75 percent interest rate, the same interest rate banks get when they borrow from the Federal Reserve.

Majority Whip Dick Durbin of Illinois said he was still counting votes, and knows many in his caucus have "mixed feelings." That said, there are a growing number of Democrats who understand doing nothing could have political consequences.

"I think most people realize if we do nothing, if we fail to pass a bipartisan bill, loan interest rates stay at 6.8 percent. If we pass it they go down to 3.8 percent," Durbin says.

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