Interest rates on educatee loans could double or more nether several scenarios beingness debated in Congress.

The U.Due south. House of Representatives on Thursday approved legislation that would necktie interest rates to marketplace rates, a move critics say volition put a bigger brunt on students. But the bill too would cake an automatic doubling of interest rates that is set to occur on July 1. While the Business firm nib is unlikely to arrive through the Democrat-controlled Senate in its electric current form, if nix is done, involvement rates volition double as scheduled later on in the summer.

The bill, 60 minutes 1911, known every bit the Smarter Solutions for Students Deed, would tie interest rates to a 10-year Treasury note, capping them at 8.5 percent or x.5 percentage depending on the type of loan. It passed the Republican-controlled House by a vote of 221 to 198, with all but iv Democrats – including Rep. Scott Peters of San Diego Canton – voting no.

Representative Virginia Foxx, R-NC, co-writer of the bill, said it provides a long-term, marketplace-based solution to stabilize pupil loan rates.

"The Smarter Solution for Students Act puts an cease to the temporary fixes that accept failed to strengthen our nation's student loan system and offers simplicity, rate caps and an assurance that involvement rates are immediately in line with the free market – a need particularly astute in this jobless economy," Foxx said.

Debt load of California students graduating from public four-year colleges and universities. (Source: The Project on Student Debt, The Institute for College Access & Success).

Debt load of California students graduating from public four-twelvemonth colleges and universities. Source: The Project on Student Debt, The Institute for Higher Access & Success

Advancement groups say the bill has the correct goal of preventing the doubling of rates from 3.iv percent to 6.8, but is the wrong approach. Hr 1911 actually leaves student borrowers open to even college rates, ascent to about 7.36 per centum by the time this fall'south freshmen graduate, according to The Institute for College Access & Success, or TICAS, and The Education Trust.

"To brand matters worse, the rate on every loan will change each year – like on credit cards and risky variable-rate mortgages that acquired the financial crunch. This means the monthly payments required under most plans will modify each year likewise," they wrote in a joint argument.

The University of California has likewise weighed in confronting HR 1911 and in support of efforts by some members of Congress to extend the current rate for another two years to requite lawmakers and the White Business firm time to work out a compromise bill.

"UC believes federal student loans are a public good and that in that location should be some level of federal benefit for low-income undergraduate and graduate students to help assure that students from a broad range of income levels can finance their postsecondary didactics," Gary Falle, manager of UC'south governmental relations function in Washington, D.C., wrote in a memo.

About 325,000 students who graduated from or left California colleges in 2010 had federal educatee loans, co-ordinate to the latest figures from the U.S. Department of Education. Compared to other states, California ranks near the bottom of federal student debt and, for once, that'south a skilful place to exist. The Projection on Pupil Debt at the Institute for Higher Access and Success said California ranks 46th nationwide in boilerplate debt at public and individual non-turn a profit four-yr colleges and universities, at well-nigh $18,879 per educatee. It'due south slightly lower at UC and significantly less at California Land University with an average of about $12,411.  Both are well beneath the national boilerplate of $29,059 at public colleges and $23,065 at private non-profit colleges.

President Obama has some other proposal that'south similar to the Republican House beak, but offers more stability for student borrowers.  His would likewise found interest rates based on the Treasury rate, but that amount would be set for the life of the loan.

Ane of the biggest concerns for California advocates is the amount of loans being taken out by students attending for-profit colleges, who are more likely to default on their repayments. Co-ordinate to TICAS, the average 2-yr default rate for students with federal loans who attended for-profit colleges in California is 13.4 per centum, more than three times college than the rate at private not-profit schools, and twice as high as at state colleges and universities.

A written report past the Congressional Research Service, prepared for Rep. George Miller, D-Martinez, the ranking minority leader on the Commission on Education and the Workforce, constitute that a educatee who borrows the maximum of $27,000 in federal Stafford loans over four years would pay an estimated $7,033 in interest under the current rate, $10,867 if the rate is immune to double on July i, and $12,374 nether 60 minutes 1911.

The additional money would go to help pay downward the federal debt. In a alphabetic character to House Speaker John Boehner, R-Ohio, and Minority Leader Nancy Pelosi, a coalition of educatee groups wrote that this is the wrong manner to go about raising revenue.

"Nosotros should not increase educatee debt to pay down the deficit," the coalition wrote. "Students are already doing their function for deficit reduction by studying hard and so they can earn more, pay more in taxes, and repay their student loans."

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