Keep Student Loans Affordable Act of 2013--Motion to Proceed--Continued
Floor Speech
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Mr. REED. Madam President, let me commend Senator Stabenow, Senator Harkin, Senator Warren, Senator Franken, and Senator Hagan, particularly, who is the cosponsor of the legislation I have proposed.
My proposal would keep the student loan interest rate for subsidized Stafford loans at 3.4 percent while we deal with a very complicated and complex set of issues. It is not just the rate structure; it is the issue of providing appropriate incentives to control the costs of higher education. It is also the issue of refinancing existing debt and prospective debt so that this huge wall of debt, the avalanche of debt affecting college graduates and professional school graduates today, can be addressed. I don't think we can do that--because these are complicated programs--off the cuff, as we are attempting to do today or as we have been over the last several days.
It turns out that if we do not extend this rate for at least a year, but instead take up the so-called bipartisan proposal eventually rates will rise on students across the board. That is because the law now calls for a 6.8-percent rate for the Stafford subsidized and unsubsidized loans and 7.9 percent for PLUS loans--fixed rates--and in order to score this as a zero in terms of the Congressional Budget Office and deficit effects, we have to over that time make up all of that interest.
The proponents of the alternate approach are suggesting we will go with a lower rate now, but that simply means mathematically we will have to have higher rates in the future. The question of when that future arrives is a function of the way interest rates will be moving in the overall economy, and every indication is those interest rates will start rising, and perhaps quickly. The Federal Reserve has already indicated they are beginning to pull back on their quantitative easing, which means rates are likely to go up. We have seen a significant rise in the 10-year T-bill rate. Since May, it has gone up almost a full percentage point. So we are in a rising rate environment, and the other side proposes moving from a fixed rate to a floating rate, without an effective cap.
What we know is that--it might not be next year or the following year but relatively quickly--we could likely see and will likely see students paying higher than the 6.8-percent rate and, without a cap, it could be significantly higher.
If we adopt the proposal suggested by my colleagues--and they have been working with great energy and great sincerity to try to come to a solution--I am afraid we are going to ultimately end up seeing students paying much more, and that is not what we should be about.
We have a situation right now, even with the 3.4-percent rate that doubled to 6.8 percent on July 1, where the Federal Government is making about $50 billion this year, between the cost of funds and the repayments being made by students, so students have become profit centers for the Federal Government rather than, as I think the intention of the program was, that the Federal program was going to help students get through college so they can help us as productive workers in our economy.
It is projected that these Federal student loan programs between now and 2023, over a 10-year period, will make $184 billion for the Federal Government, in terms of the difference between what students are paying back and the cost of borrowing from the government. So there is a lot we could do--but not in 24 hours--to redesign our program so students are not essentially being hammered with huge debts as we are benefiting profitably from those students.
The CBO estimates that under this Bipartisan Student Loan Certainty Act, between 2017 and 2023, students would pay an additional $37.8 billion more on their loans than they would under the current rate of 6.8 percent. This goes to my initial point. The first few years have been designed so interest rates will be lower than 6.8 percent. However, according to the CBO, between 2017 and 2023 they will be much higher--so if a person is a high school student right now, they are looking at paying a lot of money if they intend to go to college--about $37.8 billion more--because it all has to balance out to effectively generate as much revenue as a 6.8-percent interest rate, which is the current rate.
Students know that. That is why they have come to us and said, Listen, thanks, but no thanks. This short-run discount of a few years in terms of the interest rate, we know we might get the benefit if we have already started or are just finishing college. We definitely know that our younger brothers and sisters in high school and another generation of Americans will be paying for it.
So I don't think we should take that approach. I think what we have said is let's wait. We have a lot of work to do. We want to look at proposals that might actually align the real cost of Federal lending for a
college education and the real charges we impose on students. Right now, my sense is what our colleagues have done in their bipartisan approach has been essentially to make sure the first few years look good--they are certainly less than 6.8 percent, close to 3.4 percent--but then they have to put in a rather arbitrary delta--an increase in costs--because at the end of the 10-year period they are going to have to make up all of the interest that would have been charged at 6.8 percent. I don't think that is the way to approach fundamental reform of college loans in this country.
There is another point I think is important to make as well, which is we have always either had a fixed rate or an adjustable rate with a cap on each loan program--a cap on subsidized Stafford loans, unsubsidized Stafford loans, and on PLUS loans for families. Now, in the bipartisan proposal, they don't have a cap. There is some discussion that if students consolidate loans, they will get an 8.25-percent cap. But consolidation can only take place after a student is in repayment. And before a student is in repayment, all of that interest on the unsubsidized Stafford loans and the PLUS loans is accumulating and being capitalized into what the student owes. So when the student consolidates, they have a much bigger principal to pay off. There might be a cap of 8.25 percent, but it is a much bigger principal. By the way, the loan is extended over a longer period of time, so they also have to pay for that longer extension of time.
That is not the cap we have had before in the context of these programs. It has been a cap on the individual loan, a cap on the subsidized loan and unsubsidized loan, and a cap on the PLUS loans. I think that is a major fault within the proposal we are seeing today.
The other issue, which goes to the index, is that a 10-year T-bill interest rate has been chosen. Typically, we have chosen a 91-day T-bill, and the 91-day T-bill is cheaper, frankly. We start off with a much lower index, which lowers what the student has to pay, and then we add other costs to it, including the discount estimate of default, and all of those things come up with the final rate. But we are going to a 10-year T-bill rate, which means students will be paying more relative to a 91-day T-bill rate. Again, I don't think that is what we want to do.
We want to take the time to try to address this whole set of issues, to do it in a thoughtful way, to understand that one of the big challenges we have is not just the issue of what rate but also how do we keep college costs in check. How do we provide the kind of education students need to be competitive in the workplace? How do we deal with the interaction between all of these different types of loans? How do we go ahead and--again, this might be one of the biggest challenges we face going forward--how do we somehow allow these students who are drowning in debt to effectively refinance these loans so they can buy homes, they can buy cars, they can participate in the economy? That is not included in this proposal.
Indeed, one of my concerns is with these rates locked in--and this is long-term legislation--we won't have the proper incentive to effectively deal with these issues; we will just let them slide along. I think that would be to our great detriment and, more importantly, to the detriment of families throughout the country.
There have been--and appropriately so--comments and criticism of this short-term approach. We should have fixed it last year. Well, we haven't fixed it, and I think we have to give ourselves the time to fix it.
There is the suggestion that we are dealing with a portion of the loans--the subsidized Stafford loans--and everybody else won't get a benefit. From the numbers we have seen from CBO, one thing is certain: In the last years of the other side's proposal, from at least 2017 to 2023, everyone--subsidized, unsubsidized, and PLUS loans--will be paying more. So the one conclusion we can draw, if we go to the alternative approach, is that eventually every borrower will be paying more.
Therefore, I very strongly urge that we move forward with this cloture vote to get on to the legislation. As Senator Harkin rightly pointed out, once we are on the legislation, it is open to amendment. At least we can debate the proposals from all of my colleagues that could improve or change or modify the underlying bill. But if we don't get to cloture, then we are not moving forward, and I think we should at least move forward.
With that, I yield the floor.
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Mr. REED. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.
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Mr. REED. Madam President, we are about to take this vote. It is vitally important. The proposal is very straightforward, to extend the interest rate for subsidized Stafford loans at 3.4 percent. It is fully paid for. It will allow us to work through a very complicated set of issues. It will allow us to avoid raising rates this year and work toward a proposal we hope will avoid rising rates in the future.
The alternative proposal eventually raises rates on every student, not immediately, but CBO indicates by at least 2017 the rates will be up.
This is on top of a huge cascade of student debt we have to deal with. In fact, one of the major issues we should deal with is how do we refinance the existing loans that are at high rates. Refinancing will be even more important if we were to enact the rising rates coming from the proposals on the other side.
I urge all of my colleagues to support cloture and move forward to debate this bill.
I yield the floor.
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