Jack Reed Student Loans: Which Student-Loan Bill Provides the Best Deal For Students?


The steep price of college education is a burden with which millions of American students — past, present and future — and their parents are all too familiar. Thankfully, there are increasingly available private financial grants for those in need. Yet the vast majority of students still rely on loans and the interest rates that accompany them and, on July 1, many of these students will see a sharp increase in these rates.

Interest rates will reach 6.8% on July 1, which is roughly double the current rate for subsidized loans, and both Congress and the president agree that this hike will be an unnecessarily harsh blow to the nation’s students.

The House of Representatives has already passed a bill (which the president has vowed to veto) that lowers the interest rate to 5% for both those with subsidized and unsubsidized loans. Students with subsidized loans would still see an increase in their rates, albeit less severe than the increase scheduled for July 1, while students without subsidized loans would be subject to a roughly 1.8% decrease.

The House bill allows the private market to dictate the ultimate rates. In today’s market, rates could reach as low as 2.1%. That said, the ceiling allotted by Congress’ bill would allow rates to climb as high as 8.5% — and students would not be allowed to lock in their rates until graduation. While this approach would indeed help students today, President Obama and others argue that the approach does not offer enough stability to lower-income Americans, especially those who rely on the currently low subsidized-loan rates.

President Obama’s proposed plan would likewise lower the rate for unsubsidized loans to 5% and lower the subsidized rate to 3%. In Obama’s plan, the 10-year Treasury Yield would also dictate the fluctuation of rates, which would change annually. Students would also have the advantage of locking in rates while attending school. Nevertheless, Obama’s plan does not offer a rate ceiling, which provides another element of uncertainty to American students and families.

Senate Democrats are also involved in the discussion and intend on voting to extend current rates for two years. Some members favor a more comprehensive approach, namely Senator Reed (D-R.I.), who hopes to lower interest rates to 2.1% while allowing the 91-day Treasury Yield to dictate fluctuations. Senator Reed’s plan caps subsidized rates at 6.8% and unsubsidized rates at 8.25%. While undoubtedly a plan that would benefit students and offer stability for their fiscal future, it would deliver a hefty bill to taxpayers while also likely contributing to the ever-rising national debt.

Both parties ultimately recognize the unnecessary and unreasonable burden that July 1’s scheduled interest rate hike will impose on American students and families. Given the grave importance that education plays in the sustainability and growth of the nation, the United States cannot afford to hinder the investments that so many of its youth wish to make in their — and their nation's — future.