Nomination of Regina McCarthy to be Administrator of the Environmental Protection Agency

Floor Speech

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Mr. REED. Mr. President, over the last few weeks many of my colleagues have been engaged in a very serious, very deliberate, very thoughtful attempt to deal with the issue of student loan interest rates, which doubled July 1 for subsidized loans. They have contributed significantly in terms of trying to move this issue forward to reach a thoughtful and appropriate conclusion.

From what I have heard, under their approach--the Bipartisan Student Loan Certainty Act of 2013--I don't think, despite the good efforts and good intentions, that they have reached the objective, which is to make college affordable for all of our students and to somehow try to prevent this tidal wave of student financial debt, which is in some cases overwhelming to so many students and families across the country. Instead of emphasizing the students, I think what they have done is just tried to shield the government from investing in those students.

The clear impact of the legislation that is being proposed is that it will increase the cost of education for students. We were in a position where we legislatively reduced the rate to 3.4 percent. We had an extension for 1 year to this July. It doubled to the previous rate in existing law of 6.8 percent.

What this proposal does is to keep the rate relatively low at first--although it goes up a bit higher than the 3.4 percent--but invariably, mathematically, it gets very high. They have placed some caps there--and that is something for which I salute the authors, their efforts to put caps on the different programs--but those caps are very high also.

The inevitability is that the one sure thing is that over the course of the next few years, students will pay more for higher education at a time when they can afford it less and less and at a time when we need more fully qualified graduates to take the jobs of this new century to be competitive internationally.

I think we have before us, despite all these great efforts, legislation that will shift more and more costs to students. Instead of preventing the doubling of these rates to 6.8 percent, it would gradually raise these rates above 6.8 percent. We might see 1, 2, or 3 years of rates that are relatively below that number, but inevitably, mathematically, those rates will go beyond 6.8 percent, and the caps are rather high.

High school students of today will be paying a lot more for their student loans, and their families will be paying a lot more. It will add to the debt of these students and their families. It will restrict their ability to become not only qualified workers in our economy but also the people who drive the economy, young people who buy homes, buy automobiles, and who are able, because of their skills, to earn enough to contribute not just to the productivity of the country but their own ability to make purchases and keep that engine of the economy moving forward.

There is no real guess as to what level it would go up to because now we are moving away from fixed rates and moving toward an adjustable-rate. The rates have been pegged to a 10-year Treasury bill--a rate that we know is going up. It has gone up nearly 1 percent since just May, and in this environment it is likely to continue to go up. The rate students could pay could rise much more quickly than the projections even that CBO is suggesting. It could rise because of Federal Reserve policy. If they decide to unwind quantitative easing, and in such a way that rates shoot up, then those rates could spike very dramatically.

Students and advocates have raised their voices loud and clear urging us not to take this kind of action. They have said that no deal is better than a bad deal. The people we are trying to help are actually saying: No, that is not the kind of help we need.

With deep regret, I believe this is not the right approach going forward. What the students and advocates have asked us to do is to keep it at 3.4 percent. I have proposed legislation to do that for a year so that we could work on some of the fundamental issues that are driving costs, such as the incentives and disincentives in colleges for tuition; the issue of--which is separate but very important--how we not only provide reasonable interest rates but how we refinance all those students who are overwhelmed by debt, how they take advantage of the historically low rates of today. All of those difficult issues are being put off. I think they should be engaged, and I think we need the time to engage on those issues.

Unlike the approach of at least another year of 3.4 percent, the proposal before us would lock in about $184 billion in student loan revenue. That is in the current CBO baseline. Then there is an additional $715 million that this proposal would generate. All of that is coming out of the pockets of students and families.

Paying for college is tough. This legislation, unfortunately, could make it tougher because it would put in a permanent structure for setting student loan interest rates that could quickly result in students and parents paying more for student loans. This is not a temporary fix to get us to a better place in terms of incentives for tuition, in terms of refinancing, in terms of letting students more actively and more affordably pursue college education; this is the long term.

It is simple math. In a zero budget environment--and that is one of the principles incorporated in this legislation--reducing what students pay today means that students will have to pay more tomorrow. If we are assuming a 6.8-percent fixed rate over 10 years and we lower that rate, as this legislation does, then just do the math--it is going to have to be higher to keep it zero or neutral with respect to the budget, and that is what is going to happen. So we are going to have some relief today, but it will be followed inevitably by students who will pay more and individually have a much larger burden to bear.

I think we are in the position of taking steps that are going to make college more expensive at a time when we have to make it more affordable not only for individual families and students but for the future and success of our economy.

We are also departing from our past experience with market-based interest rates in the Federal student loan programs. This proposal also locks in historically high surcharges on top of basing the loans on a higher cost instrument. Previously we were using the 91-day T-bill, and because it was a short-term note, the interest rates were lower relative to the 10-year note. Now we are using a much higher baseline, and then we are adding historically higher premiums to that baseline for graduate students and parents. So the legislation builds in additional costs that we haven't used even when we had rates that were based on market conditions.

Under the market-based rates that were in effect from 1998 to 2006, students benefited from historically low interest rates. These rates were indexed, as I said, at the lower 91-day Treasury bill rate rather than the 10-year Treasury bill rate. As I mentioned before, we already know this 10-year Treasury bill rate is moving up.

We are making these changes from the perspective of interest rates at exactly the wrong time--at the bottom of the interest rate curve as it starts its climb up. That argues, to me--and, frankly, I think most people, if they were going to make a choice on a loan today, would try to pick a fixed rate, even if it was a little higher than the introductory rate on a variable loan, because of the experience of the last several years and because of what they are seeing all around them--rising interest rates over time.

This year, borrowers who are repaying these loans--I am talking about the loans that were made in that period of time, 1998 through 2006--have an interest rate of 2.35 percent, and over the last 5 years their rate averaged 2.41 percent. They have benefited from the declining rate. They have benefited from the huge expansion of Federal Reserve quantitative easing. They have benefited from an economy that slowed down, ironically, so that interest rates were falling. Now we are on the other side of that curve, and students won't benefit from the market rates. They will actually see higher rates as we go forward.

We offered these rates in the context of the old program where we had to also subsidize banks. Today, I would think, with the banks out of the picture and with the government, through direct lending, doing the lending, we should be able to find a solution where we can actually lock in much lower rates for students. This is the kind of solution that will take time--the time, I believe, that we could have spent and should spend by extending the 3.4 percent rate another year and looking creatively and thoughtfully at a whole spectrum of issues but with the goal of trying to give students and families the assurances that they can afford college and also that college will be affordable in the sense that the cost of college will start coming under some type of control. That takes a lot of work, and we are not doing that work today. Instead, under this proposal, we are adopting a rate structure permanently that, because of where we are in the economy, will invariably mean that students will pay more and more each year.

I have mentioned before that because of the great effort of some of my colleagues--Senator Manchin, Senator King, Senator Alexander, Senator Burr, Senator Durbin, and Chairman Harkin, I could go on and on--there have been some improvements made in the initial version of this legislation, particularly caps on individual loan programs. Those caps are very high. Under the new proposal, the cap for the undergraduate loans is 8.25 percent, and then there are caps that go all the way up to 10.5 percent. Again, let's step back here. We are putting a cap at those levels because there is a reasonable expectation that we will reach those levels. As a result, we are going from the current law, which is 6.8 percent, to as high as--in some cases for parent loans--10.5 percent. This is a huge swing not in favor of the students but to their disadvantage.

This is why I am working on an amendment, which I hope to offer, that would put the cap at 6.8 percent for all Stafford loans and at 7.9 percent for the parent PLUS loan.

Again, if we are looking at a fixed rate of 6.8 percent and we can't do better than that 2, 3, 4, 5 years from now, we have to ask ourselves whether we really need to make these changes or whether we should make these changes.

If we adopt the amendment I propose, at least we are telling parents they won't be worse off than current law and they will be better off--because of interest rates at the moment--in the next several years. I hope we can do that.

We are looking at Federal student loan debt that is over $1 trillion. This can only mathematically increase that debt. We should be investing in our students, giving them the benefit of relatively low-cost loans so they can go to school, get on with their lives, and get our economy moving again.

This is also an issue that goes to one of the core issues we face as a country, and indeed it is a core issue across the globe--the growing inequality of income and, in a sense, opportunity in our country and countries across the globe.

In the United States, the great engine for opportunity has always been education. If we make it more expensive, then fewer people can take advantage of it. If fewer people take advantage of it, the inequality will grow because they won't have the chance for the good-paying jobs. By the way, in a competitive global economy, we could see our position slip because we don't have these talented people.

So this is an issue that strikes not only at the technical aspects of a program, this goes to the heart of what it is that gives opportunity to America, and I believe it is education. I believe that if we make it expensive, fewer opportunities will be available. If we make it expensive, we will be less productive and less competitive.

I believe that despite the efforts of extraordinarily talented and dedicated colleagues, we can do better and we should do better. As such, I reluctantly oppose the underlying legislation. I would at least hope we could cap it if the amendment I offered would be accepted.

I yield the floor.

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