By Renee Schoof
McClatchy Washington Bureau
(MCT)

WASHINGTON _ Republicans in the House of Representatives and President Barack Obama agree in general on what to do with student loan interest rates: Let them vary with the market.

Congress now sets the rate, but a plan from House Republicans would base it on market rates instead. If it becomes law, subsidized loans _ those that don’t accumulate interest while a student is in school _ would have a higher interest rate next year. Unsubsidized loan rates would be lower. In the next five years, if interest rates rise as expected, student loans would cost more.

The White House plan is similar, but would use a different formula than that set forth by House Republicans.

Under current law, the interest rate is scheduled to go up from 3.4 percent to 6.8 percent on July 1 for subsidized student loans. The law expired in 2012, but a one-year extension kept the rate low last year.

Some House Democrats and student advocates say Congress should continue to set a low rate, at least for now.

Some lawmakers also are asking whether Congress could use the savings from ending the low rate to increase grants for low-income students or to help students who face defaults. Those might be some of the issues up for debate Thursday, when the House Education and the Workforce Committee considers amendments to a student loan interest-rate bill sponsored by Reps. John Kline, R-Minn., and Virginia Foxx, R-N.C., and sends it to the full House.

The White House and House Republicans have been at odds lately on almost everything else. It remains to be seen, though, whether the student loan plan gets support from some House Democrats and what approach the Senate takes. So far Democrats on the House education committee have said they oppose the legislation because it would make the cost of education for those who borrow more expensive if interest rates rise as expected in coming years.

Foxx said in an interview that since the plan is similar to one from the White House, “what we hope is that they will get the folks on their side of the aisle in line and get support for it.” She said the legislation “gets politicians out of the business of setting student loan interest rates” and “allows the market to operate.”

Under the Republican proposal, the interest rate on subsidized and unsubsidized student loans would be set at the 10-year Treasury note rate, which is now about 1.95 percent, plus 2.5 percent. That would make the rate about 4.4 percent for the upcoming school year if the proposal became law.

The change would mean a reduction in the rate for unsubsidized loans, which was 6.8 percent this year.

The bill would set student loan interest rates once a year, based on the market. Students could consolidate their loans and lock in a fixed rate based on the average of their loan rates, or keep the market-based rate.

___

(c)2013 McClatchy Washington Bureau
Visit the McClatchy Washington Bureau at www.mcclatchydc.com
Distributed by MCT Information Services