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A Blog from New America's Federal Education Budget Project

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Harkin Interest Rate Proposal Costs Students More than Bipartisan Bill

Published:  June 25, 2013

Less than a week before interest rates are scheduled to double on some federal student loans, yet another proposal has surfaced in the Senate. Sen. Tom Harkin (D-IA), chair of the Senate Health, Education, Labor, and Pensions Committee, is reported to be circulating a proposal similar to one Sens. Manchin, King, Coburn, and Burr released last week, only his plan includes lower rates on Subsidized Stafford loans (but higher rates on Unsubsidized) than the bipartisan Senate proposal and Senator Harkin adds a cap on rates.

Harkin’s plan ties rates to the 10-year Treasury-note rate, plus a 1.5 percent markup for Subsidized Stafford loans; a 3.4 percent markup on Unsubsidized loans; and a 4.5 percent markup on PLUS loans. Stafford loans would be capped at 8.25 percent, and PLUS loans would be capped at 9.25 percent. (Consolidation loans, currently capped at 8.25 percent, would no longer have a cap.) The Manchin-King plan, on the other hand, would start with the same 10-year Treasury rate with a 1.95 percent markup on undergraduate Stafford loans; a 3.4 percent markup on graduate Stafford loans; and a 4.4 percent markup on PLUS loans.

Yesterday, we compared monthly payments for a hypothetical student taking out the maximum in Subsidized and Unsubsidized Stafford loans for four years of school, under several of the existing proposals. (We used the current Treasury rate as a basis for our estimates.) Today, we’re adding the Harkin proposal to those estimates. Readers should note that the bipartisan proposal is still a better deal for undergraduates than the Harkin proposal. And because the bipartisan bill reduces the interest rate for both Subsidized and Unsubsidized loans, more students will  get a better deal.

The bipartisan Senate proposal achieves lower loan balances and overall interest rates for undergraduates than the Harkin plan because it charges graduate students more than undergraduates on Unsubsidized Stafford loans. We think charging graduate students higher rates to provide undergraduates lower ones is smart policy. It’s also progressive. Student loan borrowers with graduate degrees are hardly an economically oppressed class. Meanwhile, too many Americans struggle to obtain an undergraduate degree.

Maybe progressives could learn a thing or two from Sens. Manchin (D-WV), King (I-ME), Coburn (R-OK), and Burr (R-NC). The bipartisan proposal is a better deal for students, and it’s a better solution to the problem.  

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