7-31-13 7:01 PM EDT | Email Article
 

By Jonnelle Marte

 

The House approved a student loan bill Wednesday that would peg interest rates to the government's borrowing costs, clearing the way for President Obama to sign the bill into law.

 

While the change would lower rates for current students, future students could face higher rates if the economy improves.

 

The bill, which the House passed 392-31, would tie interest rates to the 10-year Treasury note, plus 2.05 percentage points for undergraduate students, 3.6 percentage points for graduate students and 4.6 percentage points for parent loans. That rate would be set when the student takes out the loan and remain fixed.

 

Today's approval follows last week's 81-18 vote from the Senate, which was followed by a statement from President Obama calling the bipartisan bill "a major victory for our nation's students."

 

If enacted, undergraduate students would be able to take out loans this fall with a 3.86% interest rate, lower than the 6.8% students would have faced without Congressional action. Proponents of the approach argue the bill would immediately lower borrowing costs for students and allow students to lock in those rates for the life of the loan. Supporters also argued tying loan rates to Treasurys would make borrowing costs more predictable, putting an end to several years of rates being set by Congress. "We wanted to get out of the partisan political squabble that was occurring," Rep. John Kline (R., Minn.), chairman of the House Education Committee, said on the House floor moments before the vote.

 

Future students could face higher rates if Treasury yields climb as the economy improves, critics say. The bill caps interest rates at a maximum 8.25% for undergraduate students, 9.5% for graduate students, and 10.5% for loans taken out by parents--but critics argue those rates are higher than the previous rate of 6.8%.

 

The bill comes a month after lawmakers let interest rates on federal student loans double to 6.8% from 3.4%, and if passed, it would take effect as if it were enacted on July 1. Legislators have been working to find a resolution, but the debate stalled because of disagreement over how high rates should be allowed to go in the long term.

 

Some college advocates say the bill doesn't address what they say is the more prominent issue: the rising cost of college. "This compromise doesn't do anything to lower the cost of tuition," Evan Feinberg, president of Generation Opportunity, a nonprofit advocacy organization for young people based in Arlington, Va., said in an interview after last week's Senate vote.

 

Student loan debt is now the biggest form of consumer debt, second only to mortgages, according to the Federal Reserve Bank of New York. Consumers ages 30 to 39 carry the largest debt loads, with an average debt load of $29,364 in the fourth quarter of 2012, compared with an average of $24,803 for all age groups.

-Jonnelle Marte; 415-439-6400; AskNewswires@dowjones.com

 

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(END) Dow Jones Newswires

07-31-13 1900ET

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