In-Depth Summary of House Education and Workforce Markup of Federal Student Loan Interest Rate Legislation

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May 20, 2013 · by mlivolsi · Spark Notes

Prepared by: Wes Huffman (whuffman@wpllc.net)

The House Education and the Workforce Committee met yesterday to markup two pieces of legislation, H.R. 1911, the “Smarter Solutions for Students Act,” and, H.R. 1949, the “Improving Postsecondary Education Data for Students (IPEDS) Act.”

Summary

H.R. 1911, which would convert Stafford and PLUS loans to a variable rate tied 10-year Treasuries (up to a cap), was reported out of the House Education and the Workforce Committee with a couple of Democrats joining Republicans in supporting the measure.  The Committee agreed to report the legislation on a largely party line vote of 24-15, but Rep. Jared Polis (D-CO) and Rep. John Yarmouth (D-KY) crossed the aisle to support the bill.

However, the markup was highly partisan.  Though there is some common ground among Republicans and the White House (and some Democrats) on tying the underlying rate for federal loans to an index, the stark differences among the two parties are very apparent, and the question remains whether the Congress will move to significantly modify the underlying interest rates or wait to address all of these issues via HEA reauthorization.

Republicans, led by Chairman John Kline (R-MN) and Subcommittee Chairwoman Virginia Foxx (R-NC), argued the bill would remove politics and uncertainty from establishing student loan interest rates, while Democrats, led by Ranking Member George Miller (D-CA), criticized the legislation as raising costs on the “backs of students and families.”

Democrats were quick to point to a new CBO report which states the student loan programs will earn a “profit” of $51 billion.  Of course, the report uses Federal Credit Reform Act to show these “profits,” but the questions surrounding student loan accounting, as well as CBO’s admission this figure does not include administrative costs, were absent from these arguments.

With a variable rate solution, projections over future interest rates were a key part of the markup.  Using CBO projections, a report from the Congressional Research Service indicated students were likely to pay more over the life of the loan with a variable rate than a 6.8 percent interest rate.  This led to numerous references from Democrats on the Committee that students would be better off if the rate were simply allowed to double than with the Republican plan.  However, one Democratic supporter of the proposal, Rep. Jared Polis (D-CO) pushed back on this argument, noting projections much lower than CBO’s interest rate assumptions.

There was also much discussion over the root cause of the interest rate cliff and a re-debate of previous debates.  Republicans placed the blame on the 2006 Democratic campaign promises and the subsequent College Cost Reduction and Access Act (CCRAA) of 2007, while Democrats pointed to previous budget reconciliation legislation which switched to fixed rates.

In addition to H.R. 1911, the Committee approved H.R. 1949, the IPEDS Act, which calls for creation of advisory committee for improving the data collection, reporting, and dissemination.  The Committee agreed to report this legislation on a voice vote. If you are interested in the language for the Amendment in the Nature of a Substitute, please email Wes Huffman (whuffman@wpllc.net)

Members who spoke on the bill were supportive, but Rep. Rob Andrews did indicate he hoped it would not delay the current legislative efforts (Wyden-Rubio, Hunter-Andrews) to provide this consumer information is an easy to use format.

H.R. 1911:  Member Comments & Amendment Votes

After the approving H.R. 1949, the markup turned to the more controversial legislation, H.R. 1911.  Subcommittee Chair Virginia Foxx (R-NC) introduced an amendment in the nature of substitute, which she indicated was only “technical in nature.”  Foxx opened with remarks on the bill, describing the proposal as an effort to remove “politics and confusion” from federal loan interest rates.  Foxx warned against more “can kicking,” a reference to Democratic proposals to simply extend the rate for two more years.  She noted similarities between the President’s proposal and Republican proposals with “hope to build on common ground” and said she hoped to put an “end to temporary fixes and campaign promises”

Ranking Member George Miller (D-CA) followed, describing the bill as “very unfair to students” and expressed concerns with a “truly variable” rate.  He was visibly angered by Republicans emphasizing the rate is lower than the current rate for most borrowers.  He said the bill would cost students $6,000 more over the life of the loan, the first of many references to the CRS report during the debate, and said the student loan program earned $61 billion on “the backs of students and families.”  He indicated that Republicans want to cut the deficit, but said they are “bypassing the people who contribute nothing to society” by not taxing corporations.  He added, “Students are better off if the interest rates double on July 1st than with the Republican program.”

Despite the visible outrage, Miller noted his previous efforts on college costs with Rep. Buck McKeon (R-CA), the former Chairman of the Committee.  As far as using student loans to make college more affordable, Miller indicated he thought the Committee had “run that string out” and urged the Committee to extend the rate at 3.4 percent and get to work on HEA reauthorization on a bipartisan basis.

Next to speak was Subcommittee Ranking Member Ruben Hinojosa (D-TX), who described the variable rates in the bill as “bait and switch marketing.”  Like many of his colleagues, Hinojosa referenced the CBO document indicating the government earned profits of $51 billion on student loans (Miller misspoke with $61 billion earlier), said he found it troubling, and indicated student debt affects all aspect of borrower’s lives.

Rep. Phil Roe (R-TN) was the next to speak, referencing his work as a trustee at multiple Tennessee universities, and indicating he sympathizes with rapidly increasing cost of college.  He said he would love to subsidize students as much as possible, but the “cost of borrowing is what it is.”  In response to charges that rates may skyrocket, he noted the cap included in the bill and said “no one know what interest rates will be.”  He indicated that private loans averaged between 7-7.5 percent.  He closed by noting the real issue is with college costs, which he hoped to address through HEA reauthorization.

Rep. David Loebsack (D-IA) followed Roe, and said he was opposed to the bill.  He continued with many of the same themes of concerns with increasing costs on students.  However, he also said he hoped HEA could provide an avenue for using “customer service capacity” of state agencies in higher education policy.

Next to speak was Rep. Joe Courtney (D-CT), who offered an amendment (and sponsored legislation) to simply extend the rates on Subsidized Stafford Loans for two-years.  He opened his comments by pushing back against Republican statements on the nexus of the annual interest rate crisis, the College Cost Reduction and Access Act of 2007, instead arguing it was budget reconciliation legislation from 2002 that was at the root of the crisis.  Courtney referenced his previous work in real estate, stating “buyer beware” in terms of variable interest rates and arguing they were at the root of the subprime mortgage crisis.  He closed his comments by stating Congress needs to look at all student loan issues via HEA reauthorization, including better information for high school students and improved options for refinancing.

Rep. Rob Andrews (D-NJ) followed, opening by noting the decline of the US in terms of proportion of college graduates in recent years.  He also pointed to the $4 billion in deficit savings and said, “If you make something more expensive, you get less of it.”  He said we need more federal investment in education and this was not it.  He urged the Committee to consider the wide array of student loan proposal in HEA.

Rep. John Tierney (D-MA), who has his own variable rate legislation and offered a two-year extension of Subsidized Stafford Loans at the primary rate of the Federal Reserve discount window as an amendment, pushed hard against the contention the CCRAA was the cause of this crisis.  He referenced the CBO report on $51 billion in profits.  He said the Republican bill would further “use students to make money to pay back bad decisions,” specifically mentioning the Bush tax cuts, Iraq, and Medicare Part D

Get Ex Back Dating Someone Else

Following Tierney was Rep. Bobby Scott (D-VA), he noted the CRS report suggesting that, over time, students may pay more than under fixed 6.8 percent interest rates.  However, he was not immediately dismissive of variable interest rates, stating he could support maintaining the 3.4 percent fixed rate or a much lower rate than the Republican proposals.

Rep. Rush Holt (D-NJ) continued many of the Democratic themes, putting them in some of the strongest terms.  He referenced the $51 billion in profits, arguing that it was obvious the student loan program “pays for itself,” and was highly critical of the deficit reduction in the legislation.  He was also critical of variable rates, saying they provide uncertainty, and argued the bill was fundamentally the wrong direction for the country.  Holt closed by stating disinvestments in education were “hobbling ourselves” economically and described the Republican bill as “dumb.”

Rep. Susan Davis (D-CA) began by noting the $4 billion in deficit reduction.  She then recounted her days at UC-Berkeley, noting that she felt her state was “investing in me” through public colleges and that does not seem to be the case today.  She also emphasized concerns with variable rates, specifically mentioning the rate of 10.25 percent on PLUS loans and stating, “the government should not be operating a subprime loan program.”

Rep. Jared Polis (D-CO) followed Davis, opening by stating his general concerns with college affordability and stating, “this bill isn’t perfect by any means.”  However, he then called the legislation “fundamentally sound” and said he support it.  In terms of seriouPolis pulled Wall Street estimates on interest rates vs. CBO rates and noted that, in 2017, rates would be 7.4 percent under CBO projections and 6.25 percent by Goldman Sachs’ projections. He said he would like to see the margin on the index a bit lower, referencing the President’s proposal. Polis noted he recently signed on as a cosponsor of Rep. Tom Petri’s (R-WI) EXCEL Act, the proposal for automated wage garnishment as proportion of income as better for students and  “cutting down on paperwork” for the government.  He closed by stating the bill saves money for families in short term, is likely to do so in the medium term, and it is uncertain about the long term.  He called it a step towards the President’s proposal and HEA reauthorization

Rep. Scott DeJarlais (R-IN) followed Polis, stating his support for the bill.  He indicated the student loan program is broken and operating at a lost.  DeJarlais yielded to a question from Rep. Tierney about the reports of $51 billion in profits.  He was somewhat perplexed by the report and reclaimed his time.  He closed by noting the importance of personal responsibility of students.

Rep. Frederica Wilson (D-FL) stated she was “vehemently opposed” to this “bad, bad bill.”  She cited statistics on stagnating wages, pointed to the $51 billion in profits reports, and indicated it was “unethical to raise collection costs” on students (an apparent reference to overall costs).

After the first round of comments, Chairman Kline responded, beginning with the charge that Republicans were attempting to use students to reduce the deficit.  He said, “We live and breathe by CBO and the gets you into some interesting places.” He noted the exhaustive work of Amy Jones and others on the Committee staff to try to get the bill to a completely neutral score, but it is pretty much impossible.  He acknowledged differences between Republican proposals and the President’s, but noted there were many similarities.

Ranking Member Miller responded with more outrage.  He noted that most Pell Grant recipients also borrowed, arguing the bill would make college more expensive for low-income families.  He then began with a broad attack on the wisdom of the “market,” before pivoting to private student loans themselves.  He specifically referenced JP Morgan Chase, stating the lender’s average interest was 8 percent and 13 percent for the typical Pell recipient.  He then harshly criticized variable rates, saying they “obfuscate” future costs and making a reference to the wind down of QE2.

Rep. Buck McKeon (R-CA), a former Chairman of the Committee, spoke to the real issue being the cost of college itself.  He indicated if someone just listened to Congress recently, they “would think the total cost of college hinged on student loan interest rates”

Closing the discussion, Chairman Kline again discussed budgetary issues and addressed the Democratic claims of increasing costs on students.  He noted there are multiple forms of scoring and discussed the differences between Federal Credit Reform Act accounting vs. Fair-Value accounting.  He noted that under Fair-Value accounting, the programs score as a cost.

Amendment Votes

  •  Tierney Amendment (Tying Rates to Federal Reserve      Discount Window)

After the thorough discussion on the underlying bill, the discussion turned to amendments.  The first amendment came from Rep. Tierney, which would use the primary rate at the Federal Reserve discount window as the student loan rate for the next two years.   After Rep. Holt spoke in favor of the bill, saying it would not amount to a “giveaway for students.”  Rep. Polis followed, explaining that the rates of short-term lending from a central bank are far different than those of a long-term student loan.  He said he understood the rhetorical argument, but it was “apples and oranges.”

The amendment failed 14-23.  All Democrats, with the exception of Polis, voted for the measure and all Republicans voted against it.

  •  Courtney Amendment (2-Year Extension)

Rep. Courtney offered an amendment for a two-year extension of the 3.4 percent rate.  Courtney noted the multiple student loan bills and said, “We are having a vigorous exchange of ideas on addressing this terrible problem for students and families.”  He then asked if Congress can sort through all of this in the “next 45 days” and pushed for addressing the issues via HEA reauthorization.  Notably, Polis said he would support this approach.  However, Chairman Kline said he opposed the amendment for multiple reasons.  Chiefly, it continues to “kick the can” and it does not contain a pay-for.

The Courtney amendment failed on a party line vote of 15-21.

  •  The Heck Amendments

Rep. Joe Heck (R-NV) offered two amendments, both directing the savings from the legislation to student aid.  His first amendment directed the savings to Pell Grants.  The second related to restoring certain “borrower benefits,” which were eliminated by the Budget Control Act. Both amendments were withdrawn, but Heck indicated he would continue working on these issues.

 Additional Information

  • Additional information H.R. 1911, including opening statements, legislative text, amendments and an archived webcast, is available online:  http://goo.gl/ADSGt
  • Additional information on H.R. 1949, including opening  statements, legislative text, and an archived webcast of the markup, is available online:  http://goo.gl/Z8lXN
  • The CRS report on the legislation is available online:  http://goo.gl/xEyV9
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