WASHINGTON — A Democratic bill introduced in the Senate and House on Thursday would prevent student loan rates from doubling as scheduled in July, while capping them in the future and permitting students to refinance current loans to a lower rate.
The Responsible Student Loan Solutions Act would overhaul the student loan rate structure and determine interest rates based on the cost of operating the programs. Doing so, legislators say, would allow students to benefit from the lowest interest rate that the federal government could offer.
Federally subsidized Stafford loans are currently scheduled to double in July — from 3.4 percent to 6.8 percent — if Congress does not act.
Under the new bill, the rates would be adjusted every year, with a cap of 6.8 percent for need-based federally subsidized loans and 8.25 percent for parent loans.
The interest rate would be adjusted according to the 91-day Treasury bill, which is used as an index for various variable rate loans — with an additional percentage to be determined by the Secretary of Education to cover administrative costs. The current average Treasury bill rate is .040 percent, with the Congressional Budget Office projecting that the rates will rise to 2.97 percent by 2018.
The measure was introduced by Senators Jack Reed of Rhode Island and Dick Durbin of Illinois as well as Representatives John Tierney of Massachusetts and Joe Courtney of Connecticut.
“There is something glaringly unjust when Wall Street banks whose reckless behavior nearly brought this country’s financial system to ruin can access ‘easy’ or ‘cheap’ money while students and families have to pay steep interest rates in order to pursue the American Dream,’’ Tierney said. “Our political rhetoric speaks to the need for college graduates, and our policy actions must follow suit.’’
Student debt has surpassed credit cards and auto loans as the second largest kind of consumer debt, after mortgages.