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H.R. 1716 (113th): Earnings Contingent Education Loans Act of 2013

6/17/2013: In what could become an annual occurrence, Congress yet again faces a looming deadline to resolve the problem of student loan interest rates. Without Congressional action, the rate on federally backed Stafford loans is set to double from 3.4 percent to 6.8 percent on July 1.

The Senate in early June failed to advance two bills meant to prevent this imminent increase in rates. A bill backed by Democrats would extend the current interest rate for two years, and offset the cost by ending three tax breaks. A GOP bill would peg all newly issued student loans to the U.S. Treasury 10-year borrowing rate plus 3 percentage points. Given the current Treasury rate of 1.75 percent, a student taking out a loan this coming school year would pay 4.75 percent for the life of the loan under this proposal. The Democrats’ bill garnered 51 votes, shy of the 60 needed to end debate, while the Republican proposal failed 40 to 57.

Meanwhile, the House in May passed a different Republican plan in a 221 to 198 vote, largely along party lines. This plan would permanently fix the problem by tying the student loan interest rate to the 10-year Treasury rate plus 2.5 percent. The bill would also reset the rate every year, though students could consolidate their loans into a fixed rate after graduation, and it would cap this rate at 8.5 percent.

The bills that have been voted on are among numerous measures put forward to deal with this political hot potato. House members have introduced bills to extend the 3.4 percent rate for another year (Rep. Hakeem Jeffries (D-NY)), two years (Reps. Joe Courtney (D-CT) and Louie Gohmert (R-TX)) or four years (Rep. Kyrsten Sinema (D-AZ)). Sen. Elizabeth Warren (D-MA) and Rep. John Tierney (D-MA) have proposed to key the student loan rate to the rate the Federal Reserve charges banks for very short-term loans, currently 0.75 percent.

Other lawmakers have tackled the interest rate issue as part of a broader reform of the federal student loan system. Thus, Rep. Tom Petri (R-WI) has filed a bill to calculate loan repayments based on the borrower’s salary, while also fixing the interest rate to the 10-year Treasury rate plus 3 percent. Rep. Karen Bass (D-CA) has introduced the Student Loan Fairness Act, which, among other things, would permanently cap the interest rate for all federal student loans at 3.4 percent.

The potential change in interest rates on subsidized student loans has its origins in a 2007 bill intended to boost college aid. In addition to increasing grant amounts to students and improving access to student loans, the College Cost Reduction and Access Act established a stepped reduction in interest rates. Beginning in July 2008, the rate was lowered over the course of four years from 6.8 percent to 3.4 percent, and was supposed to revert to 6.8 percent in July of last year.

Just two days before the July 1, 2012 deadline, Congress passed an extension of the 3.4 percent rate for another year. The temporary fix was adopted as part of a transportation spending bill that passed the House by a vote of 373 to 52 and the Senate 74 to 19. The $6 billion price tag associated with the extension was paid for by limiting students’ eligibility to subsidized loans to six years and changes in pension laws. A year has gone by, and now legislators are back at square one.

Last updated Jun 18, 2013. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress.

4/24/2013--Introduced. Earnings Contingent Education Loans Act of 2013 or the ExCEL Act of 2013 - Amends title IV (Student Assistance) of the Higher Education Act of 1965 (HEA) to make students ineligible to receive Direct Loans (DLs) on or after July 1, 2014.

Makes certain exceptions for student borrowers who have an outstanding balance on their DLs or Federal Family Education Loans (FFELs), as of that date, and later apply for a Direct Unsubsidized, PLUS, or Consolidation Loan.

Establishes an Income Dependent Education Assistance (IDEA) Loan program, effective July 1, 2014, making federal funds available for loans to student borrowers.

Sets the interest rate on IDEA Loans at the bond equivalent rate of ten-year Treasury bills, plus 3%. Caps the total amount of interest that can accrue during a borrower's grace and repayment periods at 50% of the total amount of their IDEA Loan.

Blocks the accrual of interest on IDEA Loans for active duty military personnel.

Allows student borrowers to consolidate FFELs, DLs, and Perkins Loans into IDEA Consolidation Loans that bear interest at an annual rate that equals the weighted average of the interest rates on the loans consolidated.

Directs the Secretary of the Treasury to establish an IDEA Loan Repayment Program that: (1) repays IDEA loans through wage withholding and quarterly estimated tax payments, and (2) provides the Secretary of Education with the tax return information for each borrower that is necessary to determine the borrower's income-based repayment obligation.

Sets the annual repayment obligation for borrowers at an amount equal to 15% of the excess of their taxable income over the sum of: (1) an exemption amount equal to 150% of the federal poverty level for their household; and (2) the lesser of $3,000 or specified income other than wages, salaries, tips and other employee compensation.

Sets the income-based repayment obligation of individuals who are not required to file a tax return at zero.

Directs the Secretary of Education to provide borrowers, through the Internet, with a tool that has an interface that enables them to manage their IDEA Loans.

Allows borrowers to prepay all or part of an IDEA Loan without penalty.

Penalizes borrowers who fail to pay their full repayment amount for a taxable year.

Amends the Social Security Act to give the Secretary of Education access to the information in the National Directory of New Hires to determine when IDEA borrowers in repayment status are hired and to inform them of their obligation to provide their employer with accurate loan information for wage withholding purposes.

Amends the Internal Revenue Code to include IDEA loan withholding information on W-2 forms and to require the Secretary of the Treasury to disclose borrowers' tax return information to the Department of Education for IDEA program purposes.

Makes specified FFEL and DL loan repayment or forgiveness programs applicable to IDEA Loans.

Expresses the sense of Congress that any federal loan repayment or forgiveness program outside of the HEA that is available to students with DLs should be available to students with IDEA Loans.