Student debt in the U.S. stands at a record high of $1.1 trillion-- it now surpasses both auto and credit card debt. According to a study by Fidelity 70% of the class of 2013 is graduating with about $35,000 in college-related debt.
And it could get worse. On July 1, interest rates on federally subsidized student loans are set to double from 3.4% to 6.8%. Nearly 7 million students will be affected by the rate increase, adding around $4.3 billion to the student debt burden next year.
Congressman John Kline wants to make sure this doesn’t happen.
Rep. Kline (R-MN) sponsored a bill that would replace the current fixed-rate interest system with rates based on the yield of the 10-year Treasury note, which was 2.18% on Tuesday.
Kline would then add 2.5% for Stafford loans with a cap at 8.5% and 4.5% for graduate and parent PLUS loans with a cap at 10.5%. Students would have the option to lock their loans at a fixed rate after graduation.
While Kline’s bill squeaked through the House (221-198) with little support from Democrats, it's being tied up in the Senate and White House advisers have recommended a veto.
President Obama’s proposed student loan bill is somewhat similar to Kline’s. They both tie interest rates to the market, but they differ on what exactly those rates should be.
"[Kline’s] bill's changes would impose the largest interest rate increases on low- and middle-income students and families who struggle most to afford a college education," says the White House.
“It would be helpful if the president would put a little more leadership into this,” Rep. Kline tells The Daily Ticker’s Aaron Task.
Kline also voiced frustration over the Senate’s inaction.
“We’re in an interesting position. The House of Representatives has passed legislation that will fix this thing permanently and the Senate as is so often the case is wringing its hands,” he explains.
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