[House Report 113-82]
[From the U.S. Government Publishing Office]
113th Congress } { Rept. 113-82
HOUSE OF REPRESENTATIVES
1st Session } { Part 1
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SMARTER SOLUTIONS FOR STUDENTS ACT
_______
May 20, 2013.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Kline, from the Committee on Education and the Workforce, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 1911]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 1911) to amend the Higher Education Act
of 1965 to establish interest rates for new loans made on or
after July 1, 2013, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Smarter Solutions for Students Act''.
SEC. 2. STUDENT LOAN INTEREST RATES.
Section 455(b) of the Higher Education Act of 1965 (20 U.S.C.
1087e(b)) is amended--
(1) in paragraph (7)--
(A) in the paragraph heading, by inserting ``, and
before july 1, 2013'' after ``2006'';
(B) in subparagraph (A), by inserting ``and before
July 1, 2013,'' after ``2006,'';
(C) in subparagraph (B), by inserting ``and before
July 1, 2013,'' after ``2006,''; and
(D) in subparagraph (C), by inserting ``and before
July 1, 2013,'' after ``2006,'';
(2) by redesignating paragraphs (8) and (9) as paragraphs (9)
and (10), respectively; and
(3) by inserting after paragraph (7), the following:
``(8) Interest rate provision for new loans on or after july
1, 2013.--
``(A) Rates for fdsl and fdusl.--Notwithstanding the
preceding paragraphs of this subsection, for Federal
Direct Stafford Loans and Federal Direct Unsubsidized
Stafford Loans for which the first disbursement is made
on or after July 1, 2013, the applicable rate of
interest shall, during any 12-month period beginning on
July 1 and ending on June 30, be determined on the
preceding June 1 and be equal to--
``(i) the high-yield 10-year Treasury notes
auctioned at the final auction held prior to
such June 1; plus
``(ii) 2.5 percent,
except that such rate shall not exceed 8.5 percent.
``(B) PLUS loans.--Notwithstanding the preceding
paragraphs of this subsection, for any Federal Direct
PLUS Loan for which the first disbursement is made on
or after July 1, 2013, the applicable rate of interest
shall, during any 12-month period beginning on July 1
and ending on June 30, be determined on the preceding
June 1 and be equal to--
``(i) the high-yield 10-year Treasury notes
auctioned at the final auction held prior to
such June 1; plus
``(ii) 4.5 percent,
except that such rate shall not exceed 10.5 percent.
``(C) Consolidation loans.--Notwithstanding the
preceding paragraphs of this subsection, any Federal
Direct Consolidation Loan for which the application is
received on or after July 1, 2013, shall bear interest
at an annual rate on the unpaid principal balance of
the loan that is equal to the weighted average of the
interest rates on the loans consolidated, rounded to
the nearest higher one-eighth of one percent.''.
SEC. 3. BUDGETARY EFFECTS.
(a) Paygo Scorecard.--The budgetary effects of this Act shall not be
entered on either PAYGO scorecard maintained pursuant to section 4(d)
of the Statutory Pay-As-You-Go Act of 2010.
(b) Senate Paygo Scorecard.--The budgetary effects of this Act shall
not be entered on any PAYGO scorecard maintained for purposes of
section 201 of S. Con. Res. 21 (110th Congress).
Purpose
H.R. 1911, the Smarter Solutions for Students Act,
strengthens federal student loan programs and serves the best
interests of both borrowers and taxpayers by taking Washington
politicians out of the business of setting student loan
interest rates and moving all federal student loans (except
Perkins loans) to a market-based rate.
Committee Action
As the Committee on Education and the Workforce continues
to evaluate the appropriate role of the federal government in
higher education, simplifying and strengthening federal aid
programs to serve students, families, and taxpayers remains a
top priority. Instead of subjecting interest rates to the whims
of Washington politicians, we believe student loan interest
rates should be aligned with the free market.
112TH CONGRESS
Hearing--Second session
On March 28, 2012, the Committee on Education and the
Workforce held a hearing in Washington, D.C. entitled,
``Reviewing the President's Fiscal Year 2013 Budget for the
U.S. Department of Education.'' The purpose of the hearing was
to discuss the fiscal year 2013 budget proposal of the U.S.
Department of Education. Testifying before the committee was
the Honorable Arne Duncan, Secretary, U.S. Department of
Education, Washington, D.C.
Legislative action--Second session
On April 25, 2012, Rep. Judy Biggert (R-IL) introduced H.R.
4628, the Interest Rate Reduction Act. The bill reduced the
interest rate on subsidized Stafford loans made to
undergraduate students from 6.8 percent to 3.4 percent for one
year, from July 1, 2012 through June 30, 2013. To offset the
increase in mandatory spending, the bill repealed the
Prevention and Public Health Fund authorized under Section 4002
of the Patient Protection and Affordable Care Act and rescinded
the balance of unobligated monies made available for the fund.
On April 27, 2012, the House of Representatives passed H.R.
4628 by a vote of 215 to 195.
Though H.R. 4628 was never considered by the Senate, its
provisions were included in the Conference Report for H.R.
4348, the Moving Ahead for Progress in the 21st Century Act
(MAP-21), sponsored by Rep. John Mica (R-FL). To partially
offset the increase in mandatory spending that resulted from
the temporary reduction in interest rates on subsidized
Stafford loans, the bill permanently restricted both the period
of eligibility to borrow subsidized Stafford loans and reduced
the period during which the in-school interest subsidy may be
provided to 150 percent of the published length of a student's
educational program.
On June 29, 2012, the House of Representatives passed the
Conference Report to H.R. 4348 by a vote of 373 to 52.
On June 29, 2012, the Senate passed the Conference Report
to H.R. 4348 by a vote of 74 to 19.
On July 6, 2012, the President of the United States signed
H.R. 4348 into law (P.L. 112-141).
113TH CONGRESS
Hearings
On March 13, 2013, the Committee on Education and the
Workforce held a hearing in Washington, D.C. entitled,
``Keeping College Within Reach: Examining Opportunities to
Strengthen Federal Student Loan Programs.'' The purpose of the
hearing was to examine ways to strengthen federal student loan
programs, as well as to explore how moving to a market-based or
variable interest rate on all loans could benefit both students
and taxpayers. Testifying before the committee were: Dr.
Deborah Lucas, Professor, Sloan School of Management,
Massachusetts Institute of Technology, Cambridge,
Massachusetts; Mr. Jason Delisle, Director, Federal Education
Budget Project, New America Foundation, Washington, D.C.; Mr.
Justin Draeger, President and Chief Executive Officer, National
Association of Student Financial Aid Administrators (NASFAA),
Washington, D.C.; and Dr. Charmaine Mercer, Vice President of
Policy, Alliance for Excellent Education, Washington, D.C.
On April 16, 2013, the Committee on Education and the
Workforce Subcommittee on Higher Education and Workforce
Training held a hearing in Washington, D.C. entitled, ``Keeping
College within Reach: The Role of Federal Student Aid
Programs.'' The purpose of the hearing was to examine the
federal role in higher education and lay out the pros and cons
of shifting the focus of federal student aid programs from
enhancing access to improving student outcomes. Testifying
before the subcommittee were: Mr. Terry W. Hartle, Senior Vice
President, Division of Government and Public Affairs, American
Council on Education, Washington, D.C.; Ms. Patricia McGuire,
President, Trinity Washington University, Washington, D.C.; Mr.
Dan Madzelan, Former Employee (Retired), U.S. Department of
Education, University Park, Maryland; and Ms. Moriah Miles,
State Chair, Minnesota State University Student Association,
Mankato, Minnesota.
Legislative action
On May 9, 2013, Chairman John Kline (R-MN) and Higher
Education and Workforce Training Subcommittee Chairwoman
Virginia Foxx (R-NC) introduced H.R. 1911, the Smarter
Solutions for Students Act. The bill moves all federal student
loans (except Perkins loans) to a market-based interest rate.
On May 16, 2013, the Committee on Education and the
Workforce considered H.R. 1911 in legislative session and
reported it favorably, as amended, to the House of
Representatives by a bipartisan vote of 24-13.
The committee considered and adopted the following
amendment to H.R. 1911:
Subcommittee Chairwoman Virginia Foxx (R-NC)
offered an amendment in the nature of a substitute to make a
technical change to the bill. The amendment was adopted by
voice vote.
The committee further considered the following amendments
to H.R. 1911, which were not adopted:
Rep. Joe Heck (R-NV) offered an amendment to
allocate a portion of the savings generated under the bill to
Pell Grants. The amendment was withdrawn.
Rep. Joe Heck (R-NV) offered an amendment to
provide the Secretary of Education with authority to reduce the
interest rate on student loans, if a borrower makes the first
48 payments on time. The amendment was withdrawn.
Rep. John Tierney (D-MA) offered an amendment to
set federal student loan interest rates as the same rate that
the Federal Reserve charges to banks for two years. The
amendment failed by a vote of 14-23.
Rep. Joe Courtney (D-CT) offered an amendment to
extend the 3.4 percent interest rate on subsidized Stafford
loans for two years. The amendment failed by a vote of 15-21.
Below is a summary of H.R. 1911.
Summary
The Smarter Solutions for Students Act moves all federal
student loans (except Perkins loans) to a market-based interest
rate. Under the legislation, student loan interest rates would
reset once a year and move with the market, much like they did
from 1992 to 2006. Interest rates would be set using the
following formula:
Stafford loans (subsidized and unsubsidized): 10-
year Treasury Note plus 2.5 percent, capped at 8.5 percent.
PLUS loans (graduate and parent): 10-year Treasury
Note plus 4.5 percent, capped at 10.5 percent.
Committee Views
Introduction
In 2006, Congressional Democrats made a series of campaign
promises to the American people, including a pledge to make
college ``affordable and accessible to all'' by permanently
reducing all student loan interest rates. After gaining control
of Congress in 2007, they realized their political promises
were too expensive, so they championed legislation to
temporarily phase down interest rates on new subsidized
Stafford loans to undergraduate students from 6.8 percent to
3.4 percent over four years. Instead of working with
Republicans on responsible solutions to help make higher
education more affordable for students in the long run, the
Democratic Congress chose to ignore the problem and kick the
can down the road, creating a student loan interest rate cliff
in 2012.
Democrats had a second opportunity to advance a more
permanent solution to the student loan interest rate problem in
2010, as part of the Student Aid and Fiscal Responsibility Act
(SAFRA). SAFRA produced $68 billion in ``savings'' through the
nationalization of the federal student loan program. At this
time, the Democratic Congress could have allocated funds to
extend the interest rate on subsidized loans or lower interest
rates for all borrowers. Instead, they chose to siphon almost
$9 billion away from federal student aid programs to fund
Obamacare.
When faced with the scheduled increase in subsidized
Stafford loans last summer, Committee Republicans agreed to
support a one-year extension of the artificially low interest
rate with the promise that we would use that time to develop a
long-term solution that better aligns student loan interest
rates with the free market.
Consensus around market-based rates
There is a growing consensus that a long-term, market-based
student loan interest rate solution is the best option for
students, families, and taxpayers. President Obama included a
comprehensive and permanent move to a market-based interest
rate for all federal student loans in his Fiscal Year 2014
budget request. Senate Republicans, led by Senators Tom Coburn
(R-OK), Richard Burr (R-NC), and Lamar Alexander (R-TN),
introduced S. 682, the Comprehensive Student Loan Protection
Act. The bill moves Stafford loans and PLUS loans to a market-
based interest rate based on the 10-year Treasury Note plus 3
percent.
The Moment of Truth Project, which aims to utilize the
recommendations of the bipartisan National Commission on Fiscal
Responsibility and Reform to spark national debate, recently
recommended moving to a market-based interest rate as a way to
deal with interest rates on a permanent, rather than annual,
basis.\1\ The project is an undertaking of the Committee for a
Responsible Federal Budget, which is made up of some of the
nation's leading budget experts, including many of the past
Chairmen and Directors of the Budget Committees, the
Congressional Budget Office, the Office of Management and
Budget, the Government Accountability Office, and the Federal
Reserve Board.
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\1\See http://www.momentoftruthproject.org/sites/default/files/
Full%20Plan%20of%20 Securing%20America%27s%20Future.pdf pg. 31.
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During a March 13, 2013 hearing entitled, ``Keeping College
Within Reach: Examining Opportunities to Strengthen Federal
Student Loan Programs,'' the Committee on Education and the
Workforce discussed the failings of the current student loan
interest rate structure for students, families, and taxpayers.
At the hearing, Mr. Jason Delisle, Director of the Federal
Education Budget Project at New America Foundation, highlighted
the need to move to a permanent, market-based interest rate on
federal student loans. He stated:
If there is one thing recent debates about interest
rates on federal student loans have demonstrated, it is
that Congress needs to develop a rational, long-term
plan for setting rates. Currently, the program charges
borrowers the same fixed interest rates no matter what
happens to other interest rates in the economy. And the
rates are arbitrary. Congress wrote them into law back
in 2002--and with the exception of an arbitrary cut to
3.4 percent on some loans--those rates have been in law
ever since.\2\
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\2\http://edworkforce.house.gov/calendar/
eventsingle.aspx?EventID=322265.
At the same hearing, Mr. Justin Draeger, President of the
National Association of Student Financial Aid Administrators,
stated students and parents often question why most of their
federal loans are fixed at nearly seven percent when the market
rate is much lower, and don't understand why each type of
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student loan has a different rate. In his testimony, he said:
The current structure of federal student loan
interest rates is out of step with market rates and
thereby confuses students and families. Students and
parents often question why federal student loan
interest rates are higher than nearly all other
installment loans, particularly for families with good
credit. And the truth is, there is no good, reasonable
answer to that question.\3\
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\3\Id.
Dr. Deborah Lucas, Sloan Distinguished Professor of Finance
at the Massachusetts Institute of Technology, highlighted
concerns about the long-term consequences of maintaining a
fixed-based approach instead of moving to a market-based
interest rate. During her testimony, she summarized the overall
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problem with the current student loan interest rate structure:
The current practice of setting fixed interest rates
that extend many years into the future--rather than
linking them by formula to prevailing market interest
rate conditions--has adverse consequences for students,
for taxpayers, and for the stability and control of
budgetary costs.\4\
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\4\Id.
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A smarter solution for students
Building on the efforts put forward by President Obama,
Senate Republicans, and leading higher education and budget
experts, Chairman John Kline (R-MN) and Representative Virginia
Foxx (R-NC) introduced H.R. 1911, the Smarter Solutions for
Students Act. This commonsense legislation simply moves all
federal student loans (except Perkins loans) to a market-based
interest rate. Under the bill, student loan interest rates
would reset once a year and move with the free market, much
like they did from 1992 to 2006. Interest rates for subsidized
and unsubsidized Stafford loans would be based off of the 10-
year Treasury Note plus 2.5 percent, capped at 8.5 percent.
Interest rates for graduate and parent PLUS loans would be
based off of the 10-year Treasury Note plus 4.5 percent, capped
at 10.5 percent.
Overall, subsidized Stafford loans make up a fraction of
all federal student loans, about 42 percent of all Direct Loans
disbursed and 26.2 percent of total Direct Loan volume in
Fiscal Year (FY) 2013. In fact, 73 percent of all borrowers
take out both subsidized and unsubsidized Stafford loans, so
very few students are exclusively benefitting from the current
artificially low interest rate. The Smarter Solutions for
Students Act will immediately result in a lower interest rate
for both unsubsidized Stafford loan and PLUS loan borrowers,
who represent the majority of total borrowers. Additionally,
the legislation prevents subsidized Stafford loans from
doubling to 6.8 percent, instead moving to an interest rate of
approximately 4.4 percent for these borrowers.
H.R. 1911 permanently removes Washington politicians from
the business of setting student loan interest rates. Temporary
fixes stemming from unrealistic campaign promises only promote
instability and cause Congress to take rash actions that could
be harmful to students, families, and our nation's student
financial aid programs in the long run. For example, last year
Congress scrambled to find $6 billion in offsets to extend the
interest rate for only one year. The only way this could be
accomplished under the wire was by enacting a change to current
law that permanently restricted a student benefit.
It is time to put an end to short-term fixes and patches
that only temporarily address our financial aid challenges.
Committee Republicans believe the Smarter Solutions for
Students Act takes important steps in the right direction by
getting politicians out of the business of setting student loan
interest rates and changing the structure of all federal
student and parent loans to reflect prevailing market interest
rates.
Helps all students and stops picking winners and losers
The Smarter Solutions for Students Act is a comprehensive,
responsible solution that will benefit all students and parents
who borrow Stafford and PLUS loans. Under current law, most
borrowers are stuck with a high fixed interest rate set by
Congress that is inconsistent with today's low interest rate
environment. The legislation ensures all borrowers can take
advantage of lower interest rates when available and protects
borrowers against higher interest rates with a reasonable cap.
Unlike the proposals by the Obama administration or Senate
Republicans, H.R. 1911 allows interest rates on federal student
loans to reset once a year. By allowing the interest rate to
reset annually, the federal government stops picking winners
and losers based on when a student takes out a loan. It also
more evenly distributes the federal subsidy among students from
different academic classes (freshman, sophomore, etc). As Dr.
Lucas pointed out at the March 13, 2013 hearing:
For students, the current policy creates large swings
in the value of government assistance from year to
year. Similar students that attend the same school but
in different years receive very different amounts of
support: Subsidies will be small when market interest
rates are low and large when rates are high. As well as
raising fairness concerns, the volatility makes it more
difficult for prospective students to assess the
affordability of pursuing a higher education.\5\
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\5\Id.
Dr. Lucas also noted that moving to a market-based interest
rate would help stabilize the investment in federal student
loan programs. On this point, Dr. Lucas stated, ``Adopting the
alternative of market-indexed rates would reduce the volatility
of subsidies for borrowers and taxpayers, and also help to
stabilize the budgetary costs of the programs.''\6\
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\6\Id.
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Under current law, a typical graduating senior could have
federal student loans with five different interest rates, one
for each of the four years that the rate on subsidized loans
was phased down and a fifth based on the rate for unsubsidized
loans. The Smarter Solutions for Students Act moves to a single
variable rate for Stafford loan borrowers, simplifying
financial aid for students and their families.
While helping all students take advantage of lower interest
rates when available, the Smarter Solutions for Students Act
also protects students in high interest environments. Unlike
the Obama administration's plan, the legislation sets a
reasonable cap on interest rates. Borrowers can also choose to
maintain a variable interest rate or lock in their interest
rate for the life of the loan by taking out a consolidation
loan. Upon graduation, borrowers will have the most up-to-date
information about the interest rate environment and the job
markets in their area, and will be able to make an informed
decision that works in the best interest of their own financial
situation. Further, the Smarter Solutions for Students Act
maintains a number of important protections in the Higher
Education Act designed to assist borrowers struggling with high
interest rate environments or having difficulty with loan
repayment. Students can take advantage of numerous generous
initiatives, including the income-based repayment plan, loan
forgiveness programs, and opportunities for deferment or
forbearance.
Provides certainty for college students and ends election year games
The Smarter Solutions for Students Act puts an end to
temporary fixes and campaign promises. The legislation 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. This point is illustrated most
prominently by the fact that the interest rate on subsidized
Stafford loans is slated to increase in a few short weeks while
House and Senate Democrats play political games with students'
financial aid. This shortsighted approach is insulting to
students and their families.
By taking the student loan interest rate problem off the
table, the committee can turn its attention to the
reauthorization of the Higher Education Act and explore more
effective ways to streamline and simplify federal student aid
programs, review efforts to promote student access and
affordability, and discuss opportunities to reduce the
regulatory burden on colleges and universities.
Conclusion
Politicians should not be in the business of setting
student loan interest rates. This shortsighted practice only
creates more uncertainty for borrowers and their families in
the long run, leaving interest rates subject to campaign
promises and the whims of Washington. The Smarter Solutions for
Students Act moves all Stafford loans, including both
subsidized and unsubsidized loans, to a single variable
interest rate, simplifying financial aid for students and their
families. It reduces the volatility of subsidies paid for by
taxpayers, stabilizes our federal student loan programs, and
serves the best interests of students, parents, and taxpayers.
Section-by-Section Analysis
Section 1. Short title
States the short title as the ``Smarter Solutions for
Students Act.''
Section 2. Student loan interest rates
Amends Section 455(b) of the Higher Education Act of 1965
to set the formula for interest rates on new federal student
loans issued on or after July 1, 2013. Rates are to vary
annually based on the 10-year Treasury note plus 2.5 percent
for all Stafford loans and 4.5 percent for all PLUS loans.
Rates are not to exceed 8.5 percent on Stafford loans and 10.5
percent on PLUS loans.
Section 3. Budgetary effects
States that the budgetary effects of the act shall not be
entered into any PAYGO scorecard.
Explanation of Amendments
The amendments, including the amendment in the nature of a
substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch. H.R. 1911 provides market-based interest rates for
certain federal student loans.
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
Mandates Reform Act, P.L. 104-4) requires a statement of
whether the provisions of the reported bill include unfunded
mandates. This issue is addressed in the CBO letter.
Earmark Statement
H.R. 1911 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of House Rule XXI.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
Correspondence
Exchange of letters with the Committee on the Budget.
Statement of General Performance Goals and Objectives
In accordance with clause 3(c) of House Rule XIII, the goal
of H.R. 1911 is to provide for market-based interest rates for
certain federal student loans. The Committee expects the
Department of Education to comply with these provisions and
implement the changes to the law in accordance with this stated
goal.
Duplication of Federal Programs
No provision of H.R. 1911 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that enacting H.R. 1911 does not
specifically direct the completion of any specific rule makings
within the meaning of 5 U.S.C. 551.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the body of this report.
New Budget Authority and CBO Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following estimate for H.R. 1911 from the Director of the
Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 20, 2013.
Hon. John Kline,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1911, the Smarter
Solutions for Students Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Deborah
Kalcevic.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 1911--Smarter Solutions for Students Act
Summary: H.R. 1911 would change the interest rates for all
new federal loans to students and parents made on or after July
1, 2013, from a fixed interest rate set in statute to a
variable interest rate, adjusted annually. Under the bill,
interest rates for all new subsidized and unsubsidized student
loans would be based on the interest rate on a 10-year Treasury
note plus 2.5 percentage points, with a cap of 8.5 percent.
(Borrowers pay no interest on subsidized loans while enrolled
in school or during other deferment periods but are responsible
for interest at all times on unsubsidized loans.) The interest
rate for all new GradPLUS and parent loans would be based on
the interest rate on a 10-year Treasury note plus 4.5
percentage points, with a cap of 10.5 percent. The bill also
would eliminate the cap on the interest rate on all new
consolidation loans (multiple loans for a single borrower
combined into one loan) originated on or after July 1, 2013.
Under current law, all subsidized and unsubsidized loans
originated on or after July 1, 2013, will have a fixed interest
rate of 6.8 percent, and all GradPLUS and parent loans will
have a fixed rate of 7.9 percent. In addition, the interest
rate on all consolidation loans is capped at 8.25 percent.
CBO estimates that enacting H.R. 1911 would reduce direct
spending by about $1.0 billion over the 2013-2018 period and by
$3.7 billion over the 2013-2023 period. Enacting the bill would
not affect revenues. Pay-as-you-go procedures apply because
enacting the legislation would affect direct spending.
Implementing the bill would not have a significant impact on
spending subject to appropriation.
H.R. 1911 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1911 is shown in the following table.
The costs of this legislation fall within budget function 500
(education, training, employment, and social services).
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By fiscal year, in millions of dollars--
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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013-2018 2013-2023
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CHANGES IN DIRECT SPENDING
Estimated Budget Authority....................... 3,870 1,495 -1,815 -2,010 -1,690 -1,355 -1,000 -670 -420 -255 -145 -1,505 -3,995
Estimated Outlays................................ 2,195 2,030 -565 -1,720 -1,610 -1,325 -1,020 -725 -480 -305 -195 -995 -3,720
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Basis of estimate: As required under the Federal Credit
Reform Act of 1990, most of the costs of the federal student
loan programs are estimated on a net-present-value basis. Under
credit reform, the present value of all loan-related cash flows
is calculated by discounting those expected cash flows to the
year of disbursement, using the rates for comparable maturities
on U.S. Treasury borrowing. (For example, the cash flow for a
one-year loan is discounted using the rate for a one-year zero-
coupon Treasury note.) The costs for the federal administration
of student loans are estimated on a cash basis. For this
estimate, CBO assumes the bill will be enacted by July 1, 2013.
Background on student loans
The federal government currently administers four types of
student loans:
Stafford subsidized loans. Subsidized loans are
available only to undergraduate students who demonstrate
financial need. Borrowers pay no interest on those loans while
they are enrolled in school or during other periods of
deferment. The interest rate for subsidized loans is 3.4
percent for academic year 2012-2013 but is scheduled to rise
under current law to 6.8 percent for academic year 2013-2014
and thereafter. The annual and aggregate amounts a student may
borrow are limited by the borrower's year in school and
dependency status.
Stafford unsubsidized loans. Unsubsidized loans
are available to undergraduate and graduate students regardless
of financial need. Borrowers are responsible for interest on
those loans at all times. Under current law, the interest rate
for subsidized loans is 6.8 percent and will remain 6.8 percent
in the future. The annual and aggregate amounts a student may
borrow are limited by the borrower's year in school, dependency
status, and the amount borrowed under the subsidized loan
program.
GradPLUS loans. GradPLUS loans are loans
specifically for graduate students who wish to borrow above the
annual or aggregate limits on unsubsidized student loans. Under
current law, the interest rate on GradPLUS loans is 7.9 percent
and will remain so. Students may borrow up to the cost of
attendance at their institution (minus any other financial aid
received).
Parent loans. Parent loans are available to
parents of students. Under current law, the interest rate on
PLUS loans is 7.9 percent and will remain so. Parents may
borrow up to the cost of attendance at their institution (minus
any other financial aid received).
In addition, under current law, borrowers with multiple
loans can consolidate all of their loans into a single loan
with a fixed interest rate. That rate is based on a weighted
average of the rates of all loans that are consolidated,
rounded up to the nearest one-eighth of one percent with a cap
of 8.25 percent.
Direct spending
Under H.R. 1911, the interest rate for all four types of
loans would adjust annually based on the last auction of
Treasury rates in May of each year for the upcoming academic
year (July 1 through June 30). As of the date of this estimate,
that auction for 2013 has not occurred. Accordingly, this
estimate uses CBO's projection of the rate for the 10-year
Treasury note in 2013. The estimated costs of the legislation
would change once that auction has taken place and CBO knows
what the actual rate for academic year 2013-2014 will be.
Under the bill, the interest rates for all new subsidized
and unsubsidized student loans would be equal to the interest
rate on the 10-year Treasury note plus 2.5 percentage points,
with a cap of 8.5 percent. Including the effect of the cap of
8.5 percent, which lowers the expected value of future interest
rates, CBO projects that interest rates for those loans would
rise from about 5 percent for academic year 2014-2015 (below
the fixed rate of 6.8 percent in current law) to about 7
percent for academic year 2023-2024.
Also under the bill, the interest rate for all new GradPLUS
and parent loans would be based on the interest rate on a 10-
year Treasury note plus 4.5 percentage points, with a cap of
10.5 percent. CBO projects that interest rates for those loans
would rise from about 7 percent for academic year 2014-2015
(below the fixed rate of 7.9 percent in current law) to about 9
percent for academic year 2023-2024, which also includes the
effect of the cap of 10.5 percent.
In addition, the bill would eliminate the cap of 8.25
percent on all consolidation loans originated as of July 1,
2013, regardless of when the initial loans being consolidated
were originated.
CBO also projects that as interest rates rise above the
level in current law, some borrowers, particularly those in the
GradPLUS and parent loan programs, would reduce the amount of
their federal borrowing. By 2023, CBO estimates that the volume
in GradPLUS and parent loan programs would decline by about 15
percent under H.R. 1911.
Based on the changes in interest rates and loan volume, CBO
estimates that enacting H.R. 1911 would increase direct
spending by $2.2 billion in fiscal year 2013 and decrease
direct spending by about $1.0 billion over the 2013-2018 period
and by $3.7 billion over the 2013-2023 period.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in outlays and revenues that are
subject to those pay-as-you-go procedures are shown in the
following table.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1911 AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON EDUCATION AND THE WORKFORCE ON MAY 14, 2013
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------------------------------------------------------------------------
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013-2018 2013-2023
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You-Go Impact................... 2,195 2,030 -565 -1,720 -1,610 -1,325 -1,020 -725 -480 -305 -195 -995 -3,720
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: H.R. 1911
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal costs: Deborah Kalcevic;
Impact on state, local, and tribal governments: J'nell L.
Blanco; Impact on the private sector: Vi Nguyen.
Estimate approved by: Peter H. Fontaine, Assistant Director
for Budget Analysis.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 1911.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the Committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
HIGHER EDUCATION ACT OF 1965
* * * * * * *
TITLE IV--STUDENT ASSISTANCE
* * * * * * *
PART D--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
* * * * * * *
SEC. 455. TERMS AND CONDITIONS OF LOANS.
(a) * * *
(b) Interest Rate.--
(1) * * *
* * * * * * *
(7) Interest rate provision for new loans on or after
july 1, 2006, and before july 1, 2013.--
(A) Rates for fdsl and fdusl.--
Notwithstanding the preceding paragraphs of
this subsection, for Federal Direct Stafford
Loans and Federal Direct Unsubsidized Stafford
Loans for which the first disbursement is made
on or after July 1, 2006, and before July 1,
2013, the applicable rate of interest shall be
6.8 percent on the unpaid principal balance of
the loan.
(B) PLUS loans.--Notwithstanding the
preceding paragraphs of this subsection, with
respect to any Federal Direct PLUS loan for
which the first disbursement is made on or
after July 1, 2006, and before July 1, 2013,
the applicable rate of interest shall be 7.9
percent on the unpaid principal balance of the
loan.
(C) Consolidation loans.--Notwithstanding the
preceding paragraphs of this subsection, any
Federal Direct Consolidation loan for which the
application is received on or after July 1,
2006, and before July 1, 2013, shall bear
interest at an annual rate on the unpaid
principal balance of the loan that is equal to
the lesser of--
(i) * * *
* * * * * * *
(8) Interest rate provision for new loans on or after
july 1, 2013.--
(A) Rates for fdsl and fdusl.--
Notwithstanding the preceding paragraphs of
this subsection, for Federal Direct Stafford
Loans and Federal Direct Unsubsidized Stafford
Loans for which the first disbursement is made
on or after July 1, 2013, the applicable rate
of interest shall, during any 12-month period
beginning on July 1 and ending on June 30, be
determined on the preceding June 1 and be equal
to--
(i) the high-yield 10-year Treasury
notes auctioned at the final auction
held prior to such June 1; plus
(ii) 2.5 percent,
except that such rate shall not exceed 8.5
percent.
(B) PLUS loans.--Notwithstanding the
preceding paragraphs of this subsection, for
any Federal Direct PLUS Loan for which the
first disbursement is made on or after July 1,
2013, the applicable rate of interest shall,
during any 12-month period beginning on July 1
and ending on June 30, be determined on the
preceding June 1 and be equal to--
(i) the high-yield 10-year Treasury
notes auctioned at the final auction
held prior to such June 1; plus
(ii) 4.5 percent,
except that such rate shall not exceed 10.5
percent.
(C) Consolidation loans.--Notwithstanding the
preceding paragraphs of this subsection, any
Federal Direct Consolidation Loan for which the
application is received on or after July 1,
2013, shall bear interest at an annual rate on
the unpaid principal balance of the loan that
is equal to the weighted average of the
interest rates on the loans consolidated,
rounded to the nearest higher one-eighth of one
percent.
[(8)] (9) Repayment incentives.--
(A) * * *
* * * * * * *
[(9)] (10) Publication.--The Secretary shall
determine the applicable rates of interest under this
subsection after consultation with the Secretary of the
Treasury and shall publish such rate in the Federal
Register as soon as practicable after the date of
determination.
* * * * * * *
MINORITY VIEWS
OVERVIEW
Committee Democrats adamantly oppose H.R. 1911, the Smarter
Solutions for Students Act. Under the guise of addressing the
coming July 1 increase in interest rates for subsidized
Stafford loans, the bill alters interest rate calculations for
all loans and makes college education more expensive for
American students and their families. In fact, instead of
offering a solution to the interest rate hike, the bill makes
matters worse. Congress should act to stop the interest rate
hike in the short-term and find longer term solutions to
reduce, not exacerbate, the cost of attending college.
Student loan debt now exceeds $1.1 trillion in total, and
the Federal Reserve has found that student debt now surpasses
aggregate auto loan, credit card and home equity debt. Only
debt on home mortgages is greater than student debt. Increasing
student loan debt is not just a burden carried by individuals,
but also a drag on our economy. Graduates with high levels of
debt cannot afford to fully participate in the economy. Student
loan debt affects a range of life choices, from where they live
to their ability to buy a car, own a home or start a family.
H.R. 1911 THE GOP BILL WORSE THAN DOING NOTHING AT ALL
According to the Congressional Budget Office (CBO), H.R.
1911 will set students further back by increasing the interest
rates they pay for student loans.\1\ The Republican proposal
seemingly offers lower rates to students next year; however,
those rates are highly variable. That is, the rates on the same
loans will change year-to-year, leading to higher interest
rates that will be more than double the rates that millions are
paying today.
---------------------------------------------------------------------------
\1\http://democrats.edworkforce.house.gov/press-release/gop-
student-loan-bill-would-make- college-more-expensive-new-independent-
nonpartisan.
---------------------------------------------------------------------------
CRS found that students and families would pay higher
interest costs under the Republican proposal than they would
even if Congress took no action and interest rates doubled as
scheduled for the neediest students in July. The figures below
are based on a standard repayment period of ten years:
Students who borrow the maximum amount of
subsidized Stafford loans over five years would pay $10,109 in
interest payments under the Republican bill, $4,174 if rates
were kept at 3.4 percent or $8,808 if rates are allowed to
double to 6.8 percent in July. Freshman starting next year
would initially receive 4.4% loans only to have them skyrocket
to almost 8% by the time they start to repay.
Students who borrow the maximum amount of
subsidized and unsubsidized Stafford loans over five years
would pay $14,430 in interest under the Republican bill,
$12,598 if subsidized loans were allowed to double in July, or
$7,965 if rates don't double.
Parents and graduate students would also pay more
under the Republican bill. For instance, a parent who borrows
the maximum amount for their child over five years would face
$35,848 in interest payments under the Republican bill, more
than the $27,956 under current law.
These added costs are a function of the markup that H.R.
1911 adds to 10-year treasuries to establish an interest rate
and the variability of those rates from year to year. Using
CBO's projections, those interest rates quickly climb above
current law's 6.8% rate for Stafford loans and 7.9% for PLUS
loans.
------------------------------------------------------------------------
Proposed Stafford
Loan Interest Proposed PLUS Loan
Fiscal Year Rates Under H.R. Interest Rates
1911 Under H.R. 1911
------------------------------------------------------------------------
2013............................ 4.4 6.4
2014............................ 5.0 7.0
2015............................ 5.7 7.7
2016............................ 6.6 8.6
2017............................ 7.4 9.4
2018............................ 7.7 9.7
2019............................ 7.7 9.7
2020............................ 7.7 9.7
2021............................ 7.7 9.7
2022............................ 7.7 9.7
2023............................ 7.7 9.7
------------------------------------------------------------------------
Republicans' H.R. 1911 will allow interest rates to more
than double for the neediest students. Under Kline's plan, an
incoming freshman next year who makes full use of the
Subsidized Stafford loan program will likely enter repayment in
2018 and will have a 7.7% interest rate on all of their loans.
H.R. 1911 will increase interest rates for millions of
borrowers above current fixed rates for 7 of the next 10 years.
A parent or graduate student borrowing PLUS Loans next year
would initially have a 6.4% rate. However, in 2016, three years
later, that rate will increase to 8.6%.
REPUBLICAN H.R. 1911 WILL INCREASE STUDENT DEBT FOR DEFICIT REDUCTION
To further confirm how detrimental H.R. 1911 is to students
and their families, the Congressional Budget Office recently
calculated that that the Republican bill will cost students and
parents $3.7 billion in additional student loan interest
charges over the next 10 years.\2\ That increased student loan
debt is directed to the deficit. Republicans want to solve the
potential consequences of the national debt on our children by
placing almost $4 billion immediately on the backs of students
before they may have received their first job or paycheck.
---------------------------------------------------------------------------
\2\Ibid.
---------------------------------------------------------------------------
REPUBLICAN H.R. 1911 FURTHER DEEPENS THE COLLEGE DEBT CRISIS, ALREADY
TOPPING $1.1 TRILLION.
Saddling students with higher interest rates means the GOP
is adding billions to the crushing debt already carried by
college students and their families. Increased debt burdens
make it harder for graduates to fully participate in the
economy.
Evidence of this trend is supported by data from the U.S.
Census Bureau that shows nearly 6 million Americans ages 25 to
34 lived with their parents in 2011, up from 4.7 million
reported in 2007.\3\ A recent report by the Consumer Financial
Protection Bureau (CFPB) suggests the reduction in young people
buying their first home is caused in part by high student debt
levels that don't leave sufficient resources necessary to start
a new family.\4\ The National Association of Realtors has also
documented a decrease in first-time homebuyers--they are now
only 30% of the market compared to historical levels of 40%.\5\
---------------------------------------------------------------------------
\3\Random Samplings: Households Doubling Up. U.S. Census Bureau.
http://blogs.census.gov/2011/09/13/households-doubling-up/.
\4\Student Loan Affordability. Consumer Financial Protection
Bureau. http://www.consumerfinance.gov/reports/student-loan-
affordability/.
\5\First-Time Home Buyers: 31 Percent of Residential Buyers.
National Association of Realtors. http://
economistsoutlook.blogs.realtor.org/2012/09/27/first-time-home-buyers-
31-percent-of-residential-buyers/.
---------------------------------------------------------------------------
This reversal of purchasing by college graduates with debt
is true with motor vehicles as well. According to the Federal
Reserve, college graduates funded auto purchases at a rate 3 to
4 percentage points greater than their non-college peers in the
past. Today these student borrowers were actually less likely
to hold auto debt.\6\
---------------------------------------------------------------------------
\6\Young Student Loan Borrowers Retreat from Housing and Auto
Markets. Federal Reserve Bank of New York. http://
libertystreeteconomics.newyorkfed.org/2013/04/young-student-loan-
borrowers-retreat-from-housing-and-auto-markets.html
---------------------------------------------------------------------------
A recent report by the CFPB confirmed that spiraling
student debt is having profoundly negative consequences for the
economy in many ways in addition to home ownership. For
example, many comments to the CFPB suggested student debt ``may
suppress risk-taking and innovation by discouraging the
formation of new business by young entrepreneurs.'' The report
also documents concern that higher student debt is leading to
fewer young people going into the teaching profession, and is
altering the nature of rural communities by creating obstacles
for student borrowers from returning to rural communities after
college.\7\
---------------------------------------------------------------------------
\7\Student Loan Affordability. Consumer Financial Protection
Bureau. http://www.consumerfinance.gov/reports/student-loan-
affordability/.
---------------------------------------------------------------------------
The Kline bill exacerbates these harmful economic trends by
piling on billions of dollars more in student loan debt.
It should be noted that, in the FY14 budget, the Obama
Administration called for a long-term variable student loan
change. Chairman Kline has suggested his bill is very similar
to the Obama proposal, but, in fact, there are stark
differences. For example, the President's proposal provides
lower interest rates than the Kline bill. Those rates are
variable, but they are fixed for the life of any loan, rather
than variable for the same loan year-to-year as in H.R. 1911.
The President's proposal also expands income-based repayment
programs to all borrowers, whereas the Kline bill provides for
no repayment assistance.
The White House summed up its differences with H.R. 1911:
While we welcome action by the House on student
loans, we have concerns about an approach that both
fails to guarantee low rates for students on July 1 and
asks too many of them to bear the burden of deficit
reduction through unaffordable rates.
The voices of student and education groups have also been
heard. As the Education Trust and the Institute for College
Access and Success has explained:
While appearing to offer low rates for new borrowers,
[H.R. 1911] does not make federal loans more
affordable. In fact, it makes them much more costly for
students, with variable rates on undergraduate loans
that are projected to rise nearly three percentage
points (to 7.36%) by the time this fall's freshmen
graduate from college and make their first loan
payment.
A coalition of student groups has weighed in with their
opposition:
This proposal [H.R. 1911] would lock in high
revenues, and takes another $3.7 billion for further
deficit reduction. We should not increase student debt
to pay down the deficit.
DEMOCRATIC VISION FOR STUDENT LOANS
It's in our national interest to work toward solving the
$1.1 trillion student loan debt problem. Democrats on the
committee believe that any student loan bill should provide a
benefit to student loan borrowers in the form of lower rates
and lower total debt, not make a college education more
expensive. Student and education groups wrote in support of
Democratic amendments and in opposition to H.R. 1911. However,
Republicans unanimously voted against the amendments.
Committee Democrats believe there must be a balanced long-
term solution for student loan interest rates and student loan
debt. There are many options Congress could, and should,
consider in order to promote an affordable and accessible
education. A balanced solution should take time to consider all
borrowers and the obstacles each face before college, in
college and after college repaying their loans. This process
will take time and can best be handled in a full
reauthorization of the Higher Education Act, due to expire in
two years.
Representative Courtney offered an amendment to freeze
subsidized Stafford loans at 3.4% for two years. The Courtney
amendment would have ensured interest rates do not double for
the neediest students. By extending low rates for two years,
the Committee would have time to thoroughly examine long-term
solutions that can properly balance affordability, access,
completion and repayment while reauthorizing the Higher
Education Act.
Representative Tierney offered an amendment to set Stafford
loan interest rates to the rate given to the nation's big banks
for two years. The Tierney amendment would have directed the
Secretary of Education to set student loan interest rates on
all Stafford loans yearly to the rates given to the nation's
largest banks by the Federal Reserve through the `discount
window'. Current rates provided to the largest banks are set at
0.75%. A version of this bill was introduced by Senator
Elizabeth Warren (D-MA).
Regrettably, these amendments were rejected by the
Committee Republicans. The current bill therefore fails a very
simple test. It makes college education more expensive for
American students and their families. That exacerbates a long-
term problem. It is not a long-term solution.
George Miller.
Robert C. Scott.
Carolyn McCarthy.
Rush Holt.
Raul M. Grijalva.
David Loebsack.
Marcia L. Fudge.
Gregorio Kilili Sablan.
Frederica S. Wilson.
Robert E. Andrews.
Ruben Hinojosa.
John F. Tierney.
Susan A. Davis.
Timothy H. Bishop.
Joe Courtney.
John A. Yarmuth.
Suzanne Bonamici.