Obama Threatens Veto of Republican Student Loan Bill

WASHINGTON -- The fight over student loan interest rates, which will double to 6.8 percent on federally subsidized Stafford loans on July 1 if Congress doesn't act, grew messier on Wednesday with a promise from the Obama administration to veto a House of Representatives plan for a long-term change to interest rates. The White House, Congressional Republicans and Congressional Democrats have now offered widely divergent plans to avert the rate hike. The Obama administration favors a long-term fix that would base interest rates for student loans on the government's cost of borrowing, while Congressional Democrats want to extend the current interest rate for a year or two in order to reauthorize the Higher Education Act.

Like the Obama administration's plan, the House Republican plan called for basing the interest rate on student loans on the 10-year yield on U.S. Treasury bonds. But the House Republican plan would allow rates to vary from year to year over the life of the loan. (Senate Republicans introduced a plan closer to the administration's: rates would vary from year to year for new loans, but they'd be fixed over the life of the loan, like a traditional mortgage.) The truly variable rate was unacceptable, the White House said in a policy statement Wednesday. The administration is also concerned that the plan doesn't provide lower interest rates for subsidized student loan borrowers, who are financially needy, and that it doesn't expand income-based repayment programs. If the bill passes in its current form, senior advisers would advise the president to veto it.

The House is expected to consider the bill today.