Amendment to Prevent Student Loan Interest Rates from Doubling
Goals of the Amendment
Republican FY2013 budget, authored by Rep. Paul Ryan, increases student loan interest rates. This amendment will provide relief to college students by preventing Stafford loan interest rates from doubling in July. The amendment keeps the interest rates on subsidized student loans at 3.4 percent for one more year; because without action, the interest rate will increase to 6.8 percent on July 1, 2012.
Background: Subsidized loans are available to students based on family income, and the interest does not begin to accrue until the student graduates. These subsidized loans will account for about one quarter of all federal student loans next year, with a net annual loan volume of $30 billion. The government will provide twice as much in unsubsidized Stafford loans – available to all students regardless of family income – on which interest begins to accrue immediately at a fixed rate of 6.8 percent.
- How to Pay for it: The increased funding for student loans is paid for by an equal amount of revenue from reducing or eliminating tax deductions to the “Big 5” oil companies, egregious tax breaks, tax loopholes that encourage outsourcing, or additional tax cuts for millionaires.
- Save $2,800 for 7 million students — Without action, the interest rate on need-based federal loans for more than 7 million students is set to double in July, going from 3.4 percent to 6.8 percent. This would lead to an average $2,800 increase in borrowing costs.
- Republican budget slashes college aid — the Republican budget drastically cuts mandatory education funding -- $285 billion below the President’s request over ten years – which can only mean higher interest rates on student loans, the end of the American Opportunity Tax Credit, the elimination of the mandatory portion of Pell grants, or some combination that lowers aid and increases costs for college students. The budget clearly does nothing to stop the interest rate on subsidized student loans from doubling in July, and in fact, the “Path to Prosperity” touts that the budget will limit the growth of financial aid.
- College graduates already burdened by debt — More than two-thirds of college seniors graduating in 2010 had student loan debt. Students who worked hard to afford and attend college now face an average of more than $25,000 in student loans, up five percent from the previous year. In fact, the average debt of a student graduating from a 4-year public college rose by 11 percent in real (inflation-adjusted) dollars from 2000 to 2010, and average debt rose by almost 25 percent for those graduating from a 4-year private non-profit college.
- Students hit hard by economy — The difficult job market has forced the next generation of Americans to postpone future plans and delay the start of their careers. Many recent college graduates are unemployed and looking for work.
- College costs are rising — The cost of getting a degree or certificate has been rising faster than inflation for far too long, forcing families and students to face the burden of higher costs.
- The average annual cost of attending a 4-year private college increased by 62 percent from 2001 to 2011, from an average of $23,836 to $38,589.
- Average costs of a 4-year public college increased by 90 percent, from $8,032 in 2001 to $17,131 in 2011.
Over 60 percent of college students get a federal student loan — Interest rates on federal student loans affect well over half of all college students: slightly over 60 percent of college seniors who graduated in 2007-2008 from a 4-year institution reported borrowing a federal loan at some point in their undergraduate studies. Subsidized Stafford loans (the subject of this amendment) will account for more than one quarter of the total federal student loan volume next year.
Democrats have worked hard to make college more affordable — Working to keep interest rates from doubling is just one in a string of initiatives pushed by Democrats in Congress and President Obama to make college more affordable, help students manage their loans, and get the economy moving again. For example, Democrats have also assisted graduates by:
- Creating the income-based repayment program to ensure graduates can manage loan repayment
- Providing loan forgiveness for graduates in public interest careers after ten years of payments
- Offering loan forgiveness for everyone else after 20 years of payments
How the Amendment is Paid for
- Egregious tax breaks — Includes repealing tax deductions such as those for corporate jets. Based on Joint Committee on Taxation estimates, repealing the tax break on corporate jets alone would raise $3 billion over ten years.
- Repeal subsidies to big oil companies — Repeals the deduction for domestic production activities (Section 199) for the major integrated oil companies (the so-called “Big 5” are Exxon-Mobil, Chevron, Shell, BP, and Conoco-Phillips). Based on Joint Committee on Taxation estimates, repeal of the domestic production activities deduction (Section 199) going to the “Big 5” would raise $13 billion over ten years.
- Close loopholes in the U.S. corporate tax system that encourage companies to ship jobs overseas — Includes some proposals similar in scope to those in the President’s 2013 budget that allow corporations to reap substantial tax benefits by shifting operations, capital, intellectual property, and jobs overseas for tax purposes. Based on Joint Committee on Taxation estimates, at least $75 billion in revenues over ten years would be raised by closing these loopholes.
- Cancel the 2001/2003/2010 tax cuts that go to millionaires after they expire at the end of 2012 — Starting in 2013, the amendment would allow the provisions of the 2001/2003/2010 tax cuts that specifically benefit upper-income households (including the 33% and 35% tax brackets) for households that make over $1 million to expire. It would also allow the extra generous estate tax relief passed in 2010 that benefits the wealthiest 0.25 percent of estates to expire. Based on Joint Committee on Taxation estimates, allowing these millionaire income tax cuts to expire would raise hundreds of billions of dollars over ten years.