One of the goals of the Obama administration’s budget released earlier this week is to encourage affordability in higher education. Nearly $1 billion of the total education budget will go towards funding programs that would contain college costs and expand research initiatives.
In addition, the budget would take away the power of Congress to regulate interest rates on student loans and instead tying them to the market. Although supporters of the move believe that this will ensure that this week keep interest rates low and prevent them from swinging wildly, opponents think that the market will push the rates higher in the future — a move that risks sticking students with unexpectedly high payments.
The budget calls for using 10-year Treasury bills as the student loan interest marker.
The interest rate provision isn’t the only part of the budget that deals with student loans. Another proposal calls for expanding the options for student loan repayments while also capping monthly payments at 10% of discretionary income.
The current rate for subsidized Stafford loans, which go mainly to low- and middle-income students, is 3.4 percent; that rate is due to double this summer. This week, Republican Senators Tom Coburn of Oklahoma, Lamar Alexander of Tennessee, and Richard Burr of North Carolina proposed legislation that would have set new student loan rates at the yield on 10-year treasury notes, plus 3 percent. Right now, that would mean an interest rate of 4.75 percent — higher than the 3.4 percent rate on subsidized Stafford loans but substantially lower than the rates on other student loans, all of which are at least 6.8 percent.
Although some lawmakers, especially those on the Democratic side of the aisle, have gone on record praising the budget, the reaction has not been universally positive. Wisconsin Representative and former Vice Presidential nominee Paul Ryan panned the proposal, saying that adopting the President’s budget would grow the deficit while doing nothing to shore up the country’s long-term economic health.
The president’s budget is such a disappointment because it’s a missed opportunity,” Ryan said. “We need a new approach to meet our generation’s most pressing challenges. I hope the other side will join us in proposing real reforms … [b]ut until then, we need to take steps in the right direction.”
Additionally, U.S. Sen. Ron Johnson, R-Wis., said Obama’s budget did not accurately address the depth of the country’s problems, such as health-care and social-security spending.
The President’s proposal is not expected to be final and the budget is expected to undergo a number of revision before eventual adoption by both houses of Congress and certified with the President’s signature.