by Brian Wolfman
In recent years, July 1 has been the crisis date for the federal program that subsidizes student loans. The loans are subsidized in a number of ways, principally by having below-market interest rates. Unless Congress acts, on July 1, the current 3.4% interest rate will double to 6.8%. A reform idea would allow student-loan interest rates to permanantly float, pegged to a standard interest rate such as the yield on 10-year treasury bills. Whether good or bad, that would avoid an annual crisis.
The House just passed this reform idea yesterday, as explained in this article by Nick Anderson. The vote was along party lines, with Republicans generally in favor and Democrats generally against. The President has actually proposed something similar to what the House just passed, but he doesn't like the just-passed bill. Here's why:
In some respects, the Republican bill echoes a plan Obama offered in April to tie interest rates to the yield on the 10-year Treasury bill, rather than setting them via an act of Congress. … Although rates under Obama’s plan would vary from year to year, they
would be fixed after students take out a loan. The Republican bill would
let rates for individual loans float. The administration cited that and
other differences as it issued a veto threat Wednesday. (emphasis added)