November 18, 2024

Senate Approves College Student Loan Plan Tying Rates to Markets

WASHINGTON — The Senate on Wednesday approved a bipartisan plan that would tie interest rates for college student loans to the financial markets, bringing Congress close to finally resolving a dispute that caused rates to double on July 1.

But the 81-18 vote, which drew overwhelming support from Republicans, masked deep divisions among members of the Senate Democratic caucus. Seventeen of them voted “no.”

Many liberals, who are upset that the plan would replace the fixed-rate subsidized federal student loan program, criticized their colleagues for leaving lower- and middle-income students vulnerable to swings in the market.

As the bill was debated, a discordant scene played out as conservative Republicans like Richard M. Burr of North Carolina praised the Democrats they had worked with to strike a deal, and liberal senators like Elizabeth Warren, Democrat of Massachusetts, and Bernard Sanders, independent of Vermont, accused their colleagues of forcing through a bill that betrayed their party’s promises to working-class families.

“What I don’t understand,” Mr. Sanders said, “is when you have a Democratic president, a Democratically controlled U.S. Senate, why we are producing a bill which is basically a Republican bill?”

Noting that the government stood to bring in nearly $200 billion over the next 10 years because of the higher rates, Ms. Warren denounced the bill.

“This is obscene,” she said. “Students should not be used to generate profits for the government.”

House Republicans, who had approved a plan similar to the one the Senate passed, although with slightly higher loan rates, are expected to pass the Senate bill before Congress leaves for its summer recess next week.

Republicans did not even try to contain their delight that a plan they championed had passed over the objections of liberal senators. Speaker John A. Boehner’s office released a chart comparing the House bill with the Senate bill, noting wryly, “The final legislation is a permanent fix, and it protects taxpayers by not adding to the deficit — things that never would have come to pass if Senate Democrats had gotten their way.”

The Democrats defected despite arm-twisting from Senator Harry Reid of Nevada, the majority leader, and deep involvement from the White House, which supported a market-rate compromise.

The White House was pressing for a fix to rates on Stafford loans, which jumped to 6.8 percent from 3.4 percent on July 1 after Congress failed to come up with a plan to replace the rate structure that expired last summer. Congress had also failed to reach an agreement then and just extended the rates a year.

In that sense, the trouble over student loans was like so many other disputes on Capitol Hill today: self-inflicted and prolonged.

“Congress has trouble with deadlines. I think we all know that,” said Senator Joe Manchin III, Democrat of West Virginia, who helped broker the deal. “We’re here today trying to fix the problem we have with the government’s student loan programs because we kicked the can down the road last year.”

The Obama administration estimated that the fix would help 11 million borrowers who will take out loans this school year. The new rates would apply retroactively to people who had borrowed since July 1.

Under the new rate structure, loans to undergraduates, graduate students, and their parents under the PLUS program would be subject to a fixed rate tied to the 10-year Treasury note — specifically the yield on the 10-year note as determined by the last auction held before each June.

Rates for loans taken out after July 1 of this year would be 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 for those receiving PLUS loans. The rates would be fixed over the life of the loan.

In a compromise that pleased many Democrats who had initially been wary of using a rate that fluctuated with the markets, Congress set a cap on all loans: 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients.

Liberal critics said that while interest rates are low now, forecasters predict they will rise considerably.

Article source: http://www.nytimes.com/2013/07/25/us/politics/senate-approves-college-student-loan-plan-tying-rates-to-markets.html?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: Our Carbon, Our Climate, Our Cash

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.

We all buy stuff that generates carbon dioxide emissions and threatens the stability of our climate. We don’t directly pay the resulting costs, which are postponed to a vague and indefinite future in which none of us can be held individually accountable for a devastating increase in the level and variability of average global temperatures.

Today’s Economist

Perspectives from expert contributors.

A tax on carbon consumption could help solve the problem, bringing the prices of carbon-intensive goods and services into closer alignment with their true costs and discouraging us all from buying more of them.

We would be hard hit by a sudden shift in relative prices, and some of us are especially vulnerable to an increase in energy costs. However, we could use carbon tax revenues to help compensate for the shock – offering everyone a rebate-like dividend to buffer reductions in purchasing power and encouraging ourselves to invest in technologies that reduce our carbon footprint.

A new Climate Protection Act introduced by Senators Bernard Sanders, the independent from Vermont, and Barbara Boxer, Democrat of California, proposes such a tax. About 60 percent of the revenues would be returned directly to consumers, 25 percent allotted to deficit reduction and 15 percent devoted to investments in renewable energy.

The bill’s sponsors aim to win the support of the American people rather than influential industry lobbying groups. Is this aim a strength or a weakness? The way you answer this question depends on who you think will throw the most weight behind climate-change legislation. It also depends on who you think “owns” our atmosphere and who you believe should get compensated when it is compromised.

Support for some kind of fee on carbon consumption that would distribute revenues to offset adjustment costs has been gaining steam for several years. In a commentary published in The New York Times in 2009, James Hansen, one of the world’s most respected climate scientists, asserted that the better-known cap-and trade approach, allowing companies to buy and sell permits to emit pollutants, had proved both ineffective and vulnerable to corruption.

He emphasized that a dividend-based approach would give consumers a stronger incentive to change their behavior and give voters a stronger incentive to support significant regulation.

Dr. Hansen’s logic lent support to a bill introduced in Congress by Senators Maria Cantwell, Democrat of Washington, and Susan Collins, Republican of Maine, proposing a cap on carbon emissions that would lead to price increases counterbalanced by per-capita dividends for consumers. In an analysis of the likely impact of such a policy, James K. Boyce and Matthew E. Riddle, my colleagues at the University of Massachusetts, Amherst, found that about 70 percent of households – and a majority of households in every state in the country – would enjoy net cash benefits.

Evidence of political traction comes from a recent proposal from the California Public Utilities Commission incorporating a dividend-based approach. It calls for distribution of some revenues from the auction of carbon emission permits to industries to be distributed equally to every residential utility account. The commission noted that this policy “comports with the idea of common ownership of the atmosphere given that residential ratepayers will ultimately bear the increased costs.”

But the Cantwell-Collins bill was largely sidelined by a push to win bipartisan support from major industry groups to pass cap-and-trade legislation. This push proved unsuccessful, perhaps because major environmental groups pursued a classic Beltway strategy of extensive lobbying and negotiation over technical details of little interest to all but major industry players. In a detailed postmortem, the Harvard political scientist Theda Skocpol contends that this strategy made it easier for Republican opponents to sway recession-weary voters fearful of the negative economic impact of higher energy prices.

The tax-and-dividend approach, by contrast, appeals directly to voters as consumers, encouraging them to change their buying habits but subsidizing that change through progressive redistribution. It also gives them a stake in higher carbon-tax revenues – economic skin in the game.

Here’s the big question: whose economic skin is most important? As Professor Skocpol makes clear, environmental groups supported cap-and-trade because they believed energy industry support was vital for climate change legislation. Some economists, including Adele Morris in a paper published by the Hamilton Project, and Donald Marron at the Tax Policy Center, assert that revenues from a carbon tax should be used to significantly lower corporate tax rates. This proposal is obviously likely to win corporate support.

But the energy industry is dominated by companies with a big stake in fossil fuels, and effective corporate tax rates are already low by international standards. There is little evidence that large businesses are suffering from any shortfall of funds to invest. Quite the contrary – profits are way up because wages have been squeezed. If anything, global businesses seem to have too much idle cash.

A tax-and-dividend policy could increase consumer spending and increase demand for energy conservation and renewable energy technologies, improving the prospects for sustainable economic growth.

It might not save all our skins, but it would offer some valuable protection from the coming burn.

Article source: http://economix.blogs.nytimes.com/2013/03/25/our-carbon-our-climate-our-cash/?partner=rss&emc=rss