Taking politics out of student loans

The year 1988 marked both an end point and a new beginning of my academic career. That was the year I completed my medical education at the Philadelphia College of Osteopathic Medicine and began paying off my college loans.

In truth, I’m still paying my student loans today. My daughter graduated from UNLV in 2010 and is paying off her student loans. So I understand students are struggling with debt because of increasing college costs and the difficulties of making payments because of a sluggish economy. I am working in Congress to ease the burden on students who, like me, value education.

Back in 2007, a Democrat-controlled Congress temporarily lowered, for four years, the interest rate on subsidized Stafford loans made to undergraduate students from 6.8 percent to 3.4 percent. Unable to pay for a long-term solution, they settled on a short-term political calculation. They believed that when the temporary lower rates expired, they would be extended; that is what happened in 2012.

However, our real problem was not solved. I have long believed that Congress arbitrarily and periodically setting student loan interest rates is bad policy. Continuing to pass temporary extensions is irresponsible, and so the House took action to end that practice.

The Smarter Solutions for Students Act takes politics out of the student loan interest rate business and returns it to a market-based approach, adding 2.5 percent for Stafford loans and 4.5 percent for PLUS loans to the 10-year Treasury note. This simple change decreases rates for all borrowers, saves taxpayers $4 billion over the next decade and takes politics out of interest rates. Because of the stability of rates on 10-year Treasury notes, students can be assured that their rates will be consistent over extended periods of time, as opposed to the current uncertainty surrounding rates potentially doubling every year.

Currently, the yield on the 10-year Treasury note is 2 percent. So under the House bill, interest rates for Stafford loans in the first year will be 4.5 percent. While this rate is slightly higher than the current 3.4 percent, it represents a two-point decrease from the actual 6.8 percent rate. Likewise, interest for PLUS loans would be 6.4 percent, a reduction of one point from the actual rate. In addition to the certainty associated with market-based rates, our bill protects borrowers by including an 8.5 percent cap on Stafford loan interest rates and a 10.5 percent cap on PLUS loans.

While interest rates on educational loans are an important issue, the true underlying problem is the total debt incurred in obtaining a post-secondary education. National student loan debt is now exceeded only by mortgage debt. As Congress works to reauthorize the Higher Education Act, we must address the cost of a college education if we are truly serious about expanding educational opportunities.

On the House Committee on Education and the Workforce, we are committed to strengthening federal student loan programs while also serving the interests of hard-working American taxpayers. The Smarter Solutions for Students Act lowers rates, provides stability in future rates, and to reiterate, it will save $4 billion over 10 years. Just as important, our bill gets politicians out of the business of setting loan interest rates.

Having paid student loans for more than 20 years, I know how important it is to have consistent interest rates, especially during difficult economic times. I remain committed to making college more affordable and making sure our recent graduates are entering a thriving job market.

Joe Heck, a Republican, represents Nevada’s 3rd District in the House of Representatives. He serves on the House Committee on Education and the Workforce.