WASHINGTON - Dismissing a veto threat from President Obama, lawmakers in the House passed legislation that links student loan rates to the ups and downs of the financial markets in a vote largely along party lines.
The Republican-backed bill would allow students to dodge a scheduled rate hike for students with new subsidized Stafford loans next month, but rates could rise in coming years. Democrats largely opposed the measure - which they branded the "Making College More Expensive Act" - while the Republican chairman of the Education Committee labeled the legislation a starting point for negotiations with the Senate and White House.
"The American people sent us here to tackle tough issues, not kick the can down the road. The time to act is now. Students, families and taxpayers cannot afford further delay," House Education and the Workforce Committee Chairman John Kline said after the vote.
Interest rates on new subsidized Stafford loans are set to double, from 3.4 percent to 6.8 percent, on July 1. Lawmakers from both parties say they want to avoid the increase but were divided on how.
Some Democrats are seeking a two-year extension of the current rates until Congress takes up a higher-education bill later. Republicans have rejected that proposal - expected to cost taxpayers $9 billion - as costly and irresponsible.
The House measure passed by a vote of 221-198. Eight Republicans and four Democrats broke from their party.
"It kind of goes without saying that you're going to be paying on your student loans for quite a while," said Ron Burruss, who will be a junior at the University of Louisville in the autumn.
By some counts, student loan debt has topped $1 trillion and surpasses credit card debt in size. Only mortgage debt is larger.
Under the GOP proposal, student loans would be reset every year, pegged to 10-year Treasury notes with added percentage points. For instance, students who receive subsidized or unsubsidized Stafford student loans would pay the Treasury rate, plus 2.5 percentage points starting for loans issued after July 1.
Current subsidized Stafford loans are offered at a fixed 3.4 percent rate and unsubsidized Stafford loans are offered at 6.8 percent. The interest rate on loans to parents and graduate students is 7.9 percent.
Using Congressional Budget Office projections, the GOP plan would translate to a 5 percent interest rate on all Stafford loans in 2014, but the rate would climb to 7.7 percent for loans in 2023.