Keep Student Loans Affordable Act of 2013--Motion to Proceed--Continued
Floor Speech
Mr. REED. Madam President, I ask unanimous consent that at the conclusion of my remarks, the Senator from Utah be recognized.
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Mr. REED. I wish to thank the Senator from Utah for graciously allowing me to proceed.
While the Republicans failed to join us in an effort to avert the doubling of the interest rate on need-based student loans, there is still time to act to make things right for students. On July 1, the interest rate on subsidized Stafford loans doubled from 3.4 percent to 6.8 percent. Instead of allowing us to take up a vote on an extension of the lower rate, the other side continues to push a so-called long-term solution that would saddle students with even more debt in the future.
Students and advocates from across the country have been very clear. On June 21, they wrote to Senate leadership, and in their words: ``A bad deal that is permanent for student borrowers is worse than no deal at all.''
We need time to work together to develop a good deal for students--one that is comprehensive, one that touches not on just rates but on incentives to lower the costs of a college education and on ways in which students can refinance their existing debt and their future debts. As we all understand, we have reached a point where student debt has exceeded credit card debt. It is the second largest household debt--$1 trillion--and it is saddling this generation and future generations with burdens they well might not be able to discharge.
In the meantime, at this moment, we should take up and pass the Keep Student Loans Affordable Act which I have offered, along with Senator Hagan and 41 of our colleagues, to ensure that students with the greatest financial need do not see the interest rate on their loans double. Again, at the heart of our student lending program has been a special concern to allow young men and women with talent from low and moderate incomes to go to college. That is why we created the subsidized Stafford loan program. That is what we have to keep our focus and emphasis on today. Forty-nine organizations representing students, educators, colleges and universities, and workers from across the country have asked us to do this. These are the students, the universities, and the people who have most at stake and they are telling us, again, that a bad deal is worse than no deal at all.
We should take a step back and remember why we offer student loans in the first place. When President Lyndon Johnson signed the Higher Education Act into law in 1965, he said: ``And it is a truism education is no longer a luxury. Education in this day and age is a necessity.''
His words are truer today than they were in 1965. According to Georgetown University Center on Education and the Workforce, we will fall 5 million short of the workers with postsecondary credentials we will need by 2020. We already know there is going to be a gap between the workers we need with advanced degrees and the jobs available by 2020. Nearly two-thirds of new jobs will require a college degree or similar credential. So by saddling this generation with additional costs and thereby inhibiting those who may well have the talent but not the resources to go to college, we are going to create an even bigger divergence between the demand for skilled workers and the talent Americans need to develop to fill those jobs.
President Johnson again referred to the Higher Education Act as a promise the Nation was making to its young people for generations to come. The promise was that this Nation was not going to allow financial barriers to keep willing and able young people from a college education. But, today, that promise is at risk.
As I have indicated, the job market increasingly demands postsecondary education simply to achieve middle-class earnings. At the same time, college is getting more and more expensive. As I said also, student loan debt is accelerating, second only to mortgage debt for American households. This is going to have a huge impact on the overall economy of this country. It is not going to be just individual students and families struggling. The Federal Reserve of New York and others have reported that this debt is dragging down our economy especially for young families as they try to establish themselves.
The primary tools in the Higher Education Act to help students pay for college are grants, work study, and low-cost loans. The Pell grant, which I must say we are so proud of because it was authored and championed by our great Senator Claiborne Pell, is less and less able to fund a college education. In the 1970s, it covered a large part of tuition and fees for a year in college. Today, the percentage of costs it covers is shrinking, even as we try to expand it. As a result, more and more students have had to rely on loans, and that is why we have seen this huge explosion of debt.
Today, instead of aiding students with low-cost loans, the Federal Government, ironically, is reaping profits from these students. We have to change this.
The Congressional Budget Office estimates that between now and 2023, student loans will generate $184 billion in revenue for the Federal Government. At a time when students are struggling and when they are seeing their debt explode, we are making money off of them--not investing in them but putting them under a huge financial burden.
As we seek to solve these complex problems, I think the most sensible and the wisest thing to do is to keep the subsidized loan rate at 3.4 percent and use the year to engage and successfully complete the complex task of looking at several different aspects of this problem.
However, we are blocked from doing so because our budget rules basically require us to replace the revenue and the other side has been unwilling to consider revenue from other sources. We propose to offset the cost by closing a tax loophole. We have to look carefully not only at what we will do to make the student loan programs cheaper and more effective for students but also how we will pay for it.
We also have to recognize that for many years our colleagues on the other side of the aisle have targeted some of these subsidized loans, wanting to make them more expensive. From the Contract With America in the 1990s to the Ryan budgets, they have suggested things such as, for example, eliminating the in-school interest subsidy on student loans. For subsidized student loans, we pay the interest while the student is in college pursuing their educational goals, and they have suggested eliminating that. These are some of the reasons why I think we have to be skeptical of proposals that are being advanced in order to provide relief for students.
The so-called Bipartisan Student Loan Certainty Act would add nearly $1 billion in additional revenues from student loans to the government coffers. It may be a short-term fix, but it creates a much larger long-term problem: The teaser rates in the first few years mask the uncapped rates students would face in the following decades.
This chart is very revealing. This demonstrates the undergraduate Stafford loan interest rates under the so-called Bipartisan Student Loan Certainty Act. This green line is the graduate Stafford loan, and this is the PLUS loan for parents. As we can see, they accelerate dramatically because of the 10-year Treasury bill rate chosen by supporters of the other proposal and because of the likely increase in that rate. It reaches the point here where interest rates exceed current law in 2016. So by 2016, these loans will be much more expensive. This is a classic case of enjoying 2 or 3 years of low interest, but having to be prepared to pay a lot more for education in the future. It is eerily reminiscent of those proposals to refinance one's house with an adjustable rate uncapped mortgage and get rid of that old-fashioned fixed rate which was so prevalent in the first decade of the 2000s and which caused so much havoc, and still is causing so much havoc.
CBO estimates that if we look from 2017 to 2023 alone, students will pay $37.8 billion more under the so-called Bipartisan Student Loan Certainty Act.
Students are smart. They can figure it out. But I think there is something else we have to add to the mix. This chart shows an estimate of the rates that was made a few weeks ago on the previous chart. Here is the change in the daily yield for the 10-year T-note. This is the benchmark rate. We can see where it begins on May 1 of 2013. It is going from about 1.6 percent all the way up to about 2.6 percent. This rate is rising dramatically. Why? Well, for one reason, the Federal Reserve has indicated they are going to begin to taper off their quantitative easing program. One reason is as we see signs of growth in the economy, interest rates will rise naturally. So what we could find is that this chart actually underestimates the potential growth in interest rates and students could end up paying maybe much more.
In the Republican proposal, there is no cap on these rates.
They talk about the fact that there is a consolidation process, but that consolidation process can only be entered into after a student has gone through school, begun repayment, accumulated interest at increasing rates each year, and then, indeed, when a student goes into the consolidation phase, all of the interest is capitalized and the loan is stretched out over many years, meaning they end up paying more. So it is not a rate cap at all. Frankly, without a rate cap, I think we are exposing students and their families to vast uncertainty. In fact, the only thing that seems to be certain is these rates are going up.
We have to approach this problem in a thoughtful way. That is why I introduced the Responsible Student Loan Solutions Act with Senator Durbin. It is a long-term proposal. It would base student loan interest rates on the actual cost of running the student loan programs--not on arbitrary rate but the actual cost to the government--and it will protect students by capping interest rates on each of the individual loan programs. Our proposal would, in effect, pass on the savings to students that the Federal Government accrues from the low cost of borrowing relative to other borrowers, our ability to absorb risk relative to others, and the economies of scale for loan servicing for students across this country.
Additionally, by increasing in this legislation the loan limits on subsidized loans, we will allow students of low and moderate income to receive more help and not require them to borrow unsubsidized loans at higher interest rates and, as a result, I think, help bring down the whole cascading issue of student debt.
Finally, our legislation would provide relief to students with outstanding loans--that is upwards of $1 trillion nationally--by allowing them to refinance to a lower interest rate.
These are some of the key elements for a true long-term solution.
We also need to address the cost of college, which is going up astronomically. The institutions have to have a lot more at stake. They have to be very careful that they are not only selecting well-qualified students, but also that they are preparing them for the workforce of this century and that they can have certainty, and the students can have certainty, that the skills they master in college will be rewarded with a job in our economy.
Finally, we have to establish a true Federal-State partnership. Federal grants and loans can't keep pace with these rising college costs. We have to work with every level of government to try to address these issues.
What I would suggest is that we work together. First, we extend the 3.4-percent interest rate, then, consciously, deliberately, and expeditiously, I hope, move forward to fix these complex issues, protect our students, allow education to be once again the engine that moves the country ahead, and allow every American, regardless of their wealth, to get aboard that train and go forward.
Madam President, I ask unanimous consent that Senators be permitted to speak for up to 10 minutes each and that Senator Hatch be permitted to speak for up to 15 minutes.
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