WASHINGTON -- Senate Democrats introduced a bill Wednesday that would keep the interest rate on subsidized student loans at 3.4 percent for another two years at a cost to the government of $8.6 billion -- a measure that underscored the distance between Congressional Democrats and the White House on interest rates. The interest rate for subsidized Stafford loans, need-based loans that don't accumulate interest while students are enrolled in college, will double to 6.8 percent on July 1 if Congress does not act.
The interest rate increase was long planned -- it was written into a 2007 law that gradually lowered interest rates for four years before letting them rebound -- and was supposed to occur last year, but Congress passed a one-year extension of the 3.4 percent rate. The White House and Congressional Republicans have both proposed plans to base the interest rate on the government's cost to borrow, which would allow the rate to vary from year to year.
Congressional Democrats, though, want to keep the rate at 3.4 percent until the issue can be considered in the reauthorization of the Higher Education Act. The legislation proposed Wednesday, sponsored by Senator Tom Harkin, the Iowa Democrat who is chairman of the Committee on Health, Education, Labor and Pensions, and Senate Majority Leader Harry Reid, among others, would pay for the extension through changes to tax law affecting retirement accounts, the oil industry and tax deductions for foreign companies. The House, meanwhile, will mark up its interest rate proposal at a hearing today.