Obama Launches Showdown With Republicans Over Student Loan Rates

This summer, add federal student loan rates to the list of partisan, polarizing issues that will take over Washington.

For the second year in a row, President Barack Obama on Friday launched a campaign to prevent the interest rates on some federal student loans from doubling July 1. Flanked by college students, Obama appeared in the White House Rose Garden to urge Congress to adopt his student loan plan.

“If Congress doesn’t act by July 1, federal student loan rates are set to double,” Obama said. “So I’m asking young people to get involved and make your voices heard once again.”

Last year, in the midst of the contentious presidential election, Obama toured college campuses, calling on Republicans to freeze student’s rates, which were set to double from 3.4 percent to 6.8 percent. The issue was a political winner for Obama. Caught off guard, Republicans ultimately agreed to freeze the rates for one year. Now, the rates are set to jump again.

This time, Republicans knew the issue was coming and actually passed a bill last week that would peg the rate on new federal student loans to the yield on 10-year U.S. Treasury notes -- a variable rate. When the White House threatened to veto the bill, Republicans were furious. A spokesman for House Speaker John Boehner, R-Ohio, argued in a blog post that Friday's event was a political stunt because Obama’s plan also uses the yield on 10-year Treasury bills to set rates.

Education advocates aren’t pleased with either plan because, while today’s low rates mean the cost to students would initially drop, the interest rates will rise over the long term -- if 10-year Treasury rates return to rates normally seen during a growing economy.

Unlike the House bill, the White House’s proposal aims to protect borrowers by limiting repayment obligations to 10 percent of their income and locking in a loan’s rate to the initial rate when the loan was taken out. The Republican bill sets a cap at the high rate of 8.5 percent; Obama's plan has no cap. These differences make the Republican bill unacceptable, the president argued Friday.

“I’m glad the House is paying attention to it but they didn’t do it the right way,” Obama said. “[Their bill] fails to lock in low rates for students next year. That's not smart. It eliminates safeguards for lower income families. That's not fair.”

The White House obviously sees the issue as a winner for the president, who on Friday used the same effective rhetoric he used last year. Republicans, who don’t want to alienate young Americans, a strong Democratic constituency, railed against the event.

“Clearly this event is nothing more than a cynical PR stunt to change the conversation from his scandals,” Republican National Committee spokeswoman Kirsten Kukowski said in a press email shortly before Obama’s speech.