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Obama Poses Student Loan Challenge To Republicans

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WASHINGTON -- President Barack Obama on Friday stepped into the hyper-partisan fight over student debt, warning about the economic dangers posed by rising debt burdens and urging Congress to pass legislation to prevent interest rates on some loans from doubling as a hard deadline looms on July 1.

His speech comes against a backdrop of rising tuition, increasing debt burdens, record relative interest rates on federal student loans and growing worries that student debt -- once seen as a ticket to a college degree and a well-paying job -- may be restraining the U.S. economy as debt-laden graduates curtail consumption.

The average new college graduate carries more than $26,000 in student debt, Obama said, flanked by college students at the White House. “That doesn’t just hold back our young graduates. It holds back our entire middle class,” he said.

Student loan payments “can last for years, even decades, which means young people are putting off buying their first car or their first house -- the things that grow our economy and create new jobs,” Obama added.

If Congress and the White House fail to agree, interest rates on subsidized Stafford loans for undergraduate students are set to double from 3.4 to 6.8 percent on July 1 because of the expiration of a 2007 law that had gradually lowered the rate. The hike would affect about one quarter of new federal student loan dollars. The doubled rates would cost affected borrowers, who come from middle- and lower-income households, about $1,000 more over the average 12-year life of each loan.

House Republicans are pushing a bill that would tie interest rates on all federal student loans to the U.S. government’s cost to borrow for 10 years. The White House has put forward a similar proposal, but it would freeze the rate for the life of the loan. Assuming interest rates do not spike, the administration's plan likely would be cheaper for students. The Republicans’ plan, however, caps interest rates.

The Republican bill “fails to lock in low rates for students next year," Obama said. "That's not smart. It eliminates safeguards for lower-income families. That's not fair. It could actually cost a freshman starting school next fall more over four years than if we did nothing at all.”

If the stakes sound familiar, it's because the Washington gridlock, intensified by election-year politics last year, resulted in a short-term fix when the interest rate was supposed to double last July. Obama made a similar push then, launching a campaign called "Don't Double My Rate," though he delivered the message primarily on college campuses in battleground states Colorado, Iowa and North Carolina, as well as on Jimmy Fallon's late night talk show.

"If this sounds like deja vu all over again, that's because it is," Obama said Friday. "We went through this last summer. Some of you were here. … Eventually Congress listened to parents and all the young people who said, don't double my rate." He asked college students to call their representatives to urge them to keep the rates down.

Last year, furious Republicans on Capitol Hill accused the president of pandering to the youth to recapture a vote that helped propel him to the White House in 2008. It wasn't until GOP presidential nominee Mitt Romney endorsed an extension of the lower rate that Republican lawmakers relented.

Congress kept the rate at 3.4 percent for one year. To keep the decrease in interest income from affecting the government’s annual budget deficit, interest rates on federal loans for graduate students rose.

While the battle ultimately ended with an extension of the lower rates, some advocates worry that outcome will be harder to achieve this time around -- perhaps because of partisan rancor. "Last year, the issue became a political football and student aid got politicized," said Chris Lindstrom, a higher education advocate with Public Interest Research Group. "The issue had previously enjoyed bipartisan support and last year it became very partisan and we continue to have that divide."

"Quite a few factors make it harder for us to win the low rate extension this year," Lindstrom added. "Nonetheless, we need to try."

Other student loan experts reckon that the impending reauthorization of the Higher Education Act, the law that governs federal aid to higher education, and a flood of proposals on Capitol Hill may improve prospects for a bipartisan compromise. For example, many proposed bills in Congress call for the government to tie student borrowing costs to the federal government’s, rather than the current system of arbitrarily set interest rates.

If lawmakers eventually strike a deal to lower students’ cost to borrow from the federal government, they would have to either allow the compromise to increase budget deficits or reduce spending on other programs.

This year, the Obama administration is set to record nearly $51 billion in profit off student borrowers, according to the Congressional Budget Office. The government profits by borrowing at near-record low rates and then charging students interest rates last set by Congress in 2007, when borrowing costs across the economy were much higher.

Obama's speech likely will kick off a new wave of advocacy, as students are expected to march on Capitol Hill to make their case next week. It is already drawing criticism from Republicans, who preemptively lashed out at the White House for what they believe is an effort to point fingers at them rather than look for ways to compromise.

Even as Obama spoke, staffers for GOP leadership took to Twitter to imply the event was merely an effort to distract from recent scandals facing the administration. Rep. Luke Messer (R-Ind.) made a similar point during an appearance on MSNBC Friday morning.

"It’s not only a distraction from issues like Benghazi and the IRS and Department of Justice, but it’s a distraction from the fact that the real threat to college-age students in America today is not a few more dollars on their student loan, it’s the fact that the explosive growth of debt, the fact that the jobs in this economy for young people entering the marketplace have been the people probably most hurt by the Obama policies," he said.

"It’s time for the president to stop politicizing the student loan issue," Rep. John Kline (R-Minn.), who chairs the House education committee, said in a statement shortly after Obama finished speaking. "The president and House Republicans agree on the need for a long-term, market-based plan that will take politicians out of the business of arbitrarily setting student loan interest rates."

House Speaker John Boehner (R-Ohio) piled on, calling the speech "misguided and deeply disappointing."

Republicans have also picked up one of Obama's tricks as they prep for the fight. GOP leadership debuted the hashtag #YouDeserveBetter on Friday, though time will tell if they can beat the president at his own game.

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