An Examination of Student Loan Interest Rate Proposals in the 113th Congress

David P. Smole
Specialist in Education Policy

The interest rates that borrowers pay on federal student loans made through the William D. Ford Federal Direct Loan program are specified in statutory language of the Higher Education Act of 1965, as amended. Numerous proposals have been made during the 113th Congress that would affect the interest rates that borrowers pay on student loans made through the Direct Loan program. These include long-term proposals to establish a new interest rate structure for all Direct Loans made during future years, and short-term proposals to temporarily extend the authority to make Direct Loans at the rates currently in effect.

For the past two years, one type of loan—Direct Subsidized Loans—have been made with a fixed interest rate of 3.4%. Absent congressional action, Direct Subsidized Loans made on or after July 1, 2013, will be made with a fixed interest rate of 6.8%.

Several of the long-term proposals would amend the Direct Loan program to index student loan interest rates to market indices, such as the rate on 10-year Treasury notes. Some policy options would establish a market-indexed, fixed interest rate structure, while others would establish a market-indexed, variable interest rate structure. In his FY2014 budget, President Obama proposed a market-indexed, fixed interest rate structure that would apply to Direct Loans made in future years. On May 23, 2013, the House passed H.R. 1911, which would establish a market-indexed, variable interest rate structure for new Direct Loans. S. 1003 would establish a new marketindexed, fixed interest rate structure for Direct Loans made in future years.

Other bills would make short-term changes to student loan interest rates and would affect only Direct Subsidized Loans. S. 953 would extend for two years the authority to make Direct Subsidized Loans with a fixed interest rate of 3.4%. S. 897 would set the borrower interest rate on new Direct Subsidized Loans made only during the upcoming federal student aid award year at the Federal Reserve discount window primary credit rate.

This report describes and analyzes student loan interest rate proposals that have been made in the 113th Congress to establish new policies for setting the interest rates that borrowers will pay on loans made through the Direct Loan program. The report compares and contrasts selected loan interest rate policy options and provides information on proposed student loan interest rate structures, projections of future interest rates, and estimates of future costs to the government. The report also presents estimates of borrower repayment amounts associated with the different interest rate proposals based on case simulations for three types of typical borrowers: undergraduate dependent students, undergraduate independent students, and parent borrowers.

Finally, the report highlights some of the perennial tensions that often arise when student loan interest rates are debated. Should federal student loan programs provide below-market or fairmarket interest rates to borrowers? What value is ascribed with providing borrowers predictable fixed monthly payments as opposed to payments that may vary in accordance with market conditions? To what extent should the federal government seek to subsidize loans or borrower repayment and for what subset of borrowers should subsidies be available?


Date of Report: June 5, 2013
Number of Pages: 40
Order Number: R43094
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Elementary and Secondary School Teachers: Policy Context, Federal Programs, and ESEA Reauthorization Issues

Jeffrey J. Kuenzi
Specialist in Education Policy

The Elementary and Secondary Education Act of 1965 (ESEA) is the primary legislative vehicle for federal policymaking regarding teachers and instructional quality in the nation’s elementary and secondary schools. Authorization for ESEA programs and policies, enacted through the No Child Left Behind Act of 2001 (NCLB), expired at the end of FY2008 and the 113th Congress is likely to consider whether to amend and extend the ESEA. Notable ESEA provisions concerning K-12 teaching include requirements for minimum teacher qualifications and authority for a teacher training and class size reduction program funded at roughly $3 billion.

The size of the teaching workforce and diversity of the teaching workplace present many challenges to federal policymakers. The workforce of roughly 4 million teachers in the U.S. are both aging and “greening”—with well over one-third (37%) on the job for over 15 years and an equal share (36%) having taught less than four years in their current school. The teaching workplace of about 14,000 school districts nationwide is a highly dynamic one—with certain schools experiencing high rates of staff turnover each year and many schools instituting major reforms of teacher evaluation procedures.

The federal role in K-12 teacher policy has evolved rapidly since passage of NCLB. Federal policy has historically focused mainly on in-service training (or professional development). This focus began to change as the 105th Congress tripled funding for federal teacher programs by enacting a hiring program known as Class Size Reduction. With NCLB, the focus of federal policy moved squarely to the issue of teacher quality. The law mandated that all “core” subjectmatter teachers possess minimum qualifications including a bachelor’s degree, full state certification, and subject-matter knowledge. More recently, the focus of federal policy in this area has shifted to teacher effectiveness, particularly with passage of the American Recovery and Reinvestment Act of 2009 (ARRA), which authorized the Race to the Top program. Legislative action in the 112th Congress, including bills passed by authorizing committees in both chambers, also contained provisions that would continue federal involvement in state and local efforts to evaluate teacher effectiveness.

At the present time, the Department of Education (ED) administers a dozen programs that support elementary and secondary school teachers and instructional quality. By far the largest of these, both in terms of appropriations and number of teachers served, is authorized in Part A of Title II of the ESEA—the Teacher and Principal Training and Recruiting Fund. In FY2013, this program provided roughly $3 billion primarily for teacher professional development to support meeting the NCLB highly qualified-teacher requirement. The second and third largest federal teacher programs are Race to the Top ($550 million in FY2013, though not all funds are used to improve teaching) and the Teacher Incentive Fund ($300 million in FY2013). Both of these programs support improved teacher effectiveness, the former through teacher evaluation reform and the latter by providing pay compensation to high-performing teachers.

If the 113th Congress considers reauthorizing the ESEA, teacher effectiveness will likely continue to be central to this discussion. Other issues of importance include compensation and high-stakes school staffing decision-making, distributional equity across schools and districts, teacher preparation programs—both traditional and alternative—and professional development.


Date of Report: May 8, 2013
Number of Pages: 31
Order Number: R41267
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Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers

David P. Smole
Specialist in Education Policy

The William D. Ford Federal Direct Loan (DL) program, authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA), as amended, is the primary federal student loan program administered by the U.S. Department of Education (ED). The program makes available loans to undergraduate and graduate students and the parents of dependent undergraduate students to help them finance their postsecondary education expenses. Four types of loans are offered: Subsidized Stafford Loans for undergraduate students; Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for graduate students and the parents of dependent undergraduate students; and Consolidation Loans through which borrowers may combine multiple loans into a single loan. For FY2014, ED estimates that 21.9 million loans (not including Consolidation Loans) totaling $112.1 billion will be made to students and their parents through the DL program.

Until July 1, 2010, Subsidized Stafford Loans, Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans were also available through the Federal Family Education Loan (FFEL) program. The SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152), terminated the authority to make new loans under the FFEL program after June 30, 2010. While new FFEL program loans are no longer being made, approximately $294 billion in outstanding FFEL program loans are due to be repaid over the coming years.

FFEL and DL program loans are low-interest loans, with maximum interest rates for each type of loan established by statute. Subsidized Stafford Loans are unique in that they are only available to undergraduate students demonstrating financial need. With certain exceptions, the federal government pays the interest that accrues on Subsidized Stafford Loans while the borrower is enrolled in school on at least a half-time basis, during a six-month grace period thereafter, and during periods of authorized deferment. Unsubsidized Stafford Loans and PLUS Loans are available to borrowers irrespective of their financial need; and borrowers are responsible for paying all the interest that accrues on these loans. FFEL and DL program loans have terms and conditions that may be more favorable to borrowers than private and other non-federal loans. These beneficial terms and conditions include interest rates that are often lower than rates that might be obtained from other lenders, opportunities for repayment relief through deferment and forbearance, loan consolidation, and several loan forgiveness programs.

In the recent years, numerous changes were made to the terms and conditions of DL program loans. The Budget Control Act of 2011 (BCA; P.L. 112-25) eliminated the availability of Subsidized Stafford Loans to graduate and professional students for periods of instruction beginning on or after July 1, 2012; and terminated the availability of certain repayment incentives for loans made on or after July 1, 2012. The College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84) incrementally lowered, from 6.8% to 3.4%, the fixed interest rates charged to undergraduate borrowers of Subsidized Stafford Loans made during the four award years spanning July 1, 2008, to June 30, 2012. The Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141) extended the 3.4% interest rate to apply to Subsidized Stafford Loans made from July 1, 2012 June 30, 2013.

In the 113th Congress, bills affecting student loan interest rates may be considered. These include H.R. 1911, which would establish a new market-indexed variable interest rate structure for all DL program loans made on or after July 1, 2013; and S. 953, which would extend the 3.4% interest rate on Subsidized Stafford Loans to apply to loans disbursed from July 1, 2013, through June 30, 2015. Under current law, Subsidized Stafford Loans made on or after July 1, 2013, will have a fixed interest rate of 6.8%.


Date of Report: May 17, 2013
Number of Pages: 71
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The Student Non-Discrimination Act (SNDA): A Legal Analysis

Jody Feder
Legislative Attorney

Introduced in both the 111th and 112th Congress and again in the 113th (H.R. 1652), the Student Non-Discrimination Act (SNDA) would prohibit discrimination on the basis of actual or perceived sexual orientation or gender identity in public elementary and secondary schools. The stated purpose of the legislation is to ensure that students are free from discriminatory conduct such as harassment, bullying, intimidation, and violence. SNDA appears to be patterned on Title IX of the Education Amendments of 1972, which prohibits discrimination on the basis of sex in federally funded education programs or activities, although SNDA does differ from Title IX in several important respects.


Date of Report: May 9, 2013
Number of Pages: 9
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The Family Educational Rights and Privacy Act (FERPA): A Legal Overview

Jody Feder
Legislative Attorney

The Family Educational Rights and Privacy Act (FERPA) of 1974 guarantees parental access to student education records, while limiting the disclosure of those records to third parties. The act, sometimes referred to as the Buckley Amendment, was designed to address parents’ growing concerns over privacy and the belief that parents should have the right to learn about the information schools were using to make decisions concerning their children. No substantial legislative changes have been made to FERPA since 2001, but in 2011, the Department of Education (ED) issued controversial new regulations that, among other things, permit educational agencies and institutions to disclose personally identifiable information to third parties for purposes of conducting audits or evaluations of federal- or state-supported education programs or enforcing compliance with federal requirements related to such programs. 


Date of Report: May 1, 2013
Number of Pages: 10
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