Editorial: Income-based repayment should be expanded into higher education plans
Several proposals to address student loan rates are currently in front of Congress. If a decision is not reached by July 1, interest rates on loans will double.
Our stance
A long-term solution is necessary and should specifically take into account a person’s income in setting maximum monthly payments for loan repayment.
By Editorial Board
May 30, 2013 12:00 a.m.
If Congress does not act by July 1, students paying for college with federal subsidized loans will see their interest rates double – from 3.4 to 6.8 percent.
When faced with the same hike a year ago, Congress punted the decision and elected to extend the prevailing rate for one more year.
Though proposed solutions vary for how to address the issue this year, this board would like to see a bipartisan, long-term solution instead of something like last year’s quick fix.
Senate Democrats have put forward a two-year extension of the 3.4 percent rate. While that would keep the interest rate low, such a short-sighted proposal would have to be offset by closing tax loopholes or cutting certain student benefits, and could still lead to a steeper increase in two years.
Common ground can probably be found somewhere between a bill introduced by Republicans in the House of Representatives and President Barack Obama’s higher education plan presented in his 2014 budget. Both plans would tie the interest rate of the loan to the interest rates of Treasury notes, something that previous higher education plans took into account.
The House plan would reset the interest rate at the beginning of each academic year and would save the government $3.7 billion over 10 years, according to the Congressional Budget Office. The White House proposal, which is revenue-neutral, says that interest rates would stay constant over the life of the loan.
It is tough to project future interest rates in any kind of economy, but the Congressional Budget Office analyses of both the Republicans’ and president’s plans make this much clear: Interest rates will continue to rise in the near future. If they are to be tied to ever-fluctuating market rates, protections need to be in place to prevent students from being levied with debt they cannot afford.
That’s why this board supports expanding income-based repayment plans, which exist on a limited basis. Under income-based repayment, a maximum is set on the amount the government can ask you to repay in any one month. Currently, this cap is set at 15 percent of discretionary income and is available only to those who demonstrate partial financial hardship. The Obama budget proposes expanding income-based repayment and setting the maximum at 10 percent of discretionary income.
Instituting this measure would ensure that recent graduates wouldn’t have to pay the price for an unexpected change in the markets, especially if they are having trouble finding a source of income.
Congress will deliberate how to set student loan interest rates over the next month and may not make income-based repayment a part of the fix. If that were to happen, this board would still like to see income-based repayment expanded in the next higher education bill, regardless of the solution reached on interest rates.
