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House advances student loan fix

Without congressional action, interest rates for new subsidized Stafford student loans will double on July 1.

Paul Sakuma/Associated Press

Without congressional action, interest rates for new subsidized Stafford student loans will double on July 1.

WASHINGTON — The days of fixed-rate student loans could be coming to a close, with House Republicans advancing a proposal Thursday that would link rates to financial markets.

The GOP-led House Education and the Workforce Committee sent to the full House a bill that would offer some students a better deal at first. Democratic critics warned that graduates would face steadily climbing rates and costs over the long haul if the markets change.

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‘‘Our families deserve better than this bait and switch,’’ said Representative George Miller of California, the senior Democrat on the committee.

The Republican chairman of the panel, Representative John Kline of Minnesota, said critics were giving too much credence to Congressional Budget Office figures that anticipate future interest rates and don’t accurately measure real costs for the program that helps 36 million students.

‘‘We don’t know what these interest rates are going to be,’’ Kline said.

Without congressional action, interest rates for new subsidized Stafford student loans would double from 3.4 percent to 6.8 percent on July 1. Neither party wants that to happen, although there remain strong differences in the methods to dodge that.

Democrats attempted to hold the rates at 3.4 percent while Congress considers a long-term fix. Their proposal received no votes from Republicans.

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‘‘Student loan rates should not be subject to the whims of Congress,’’ said Representative Virginia Foxx, Republican of North Carolina. ‘‘Students’ families and taxpayers deserve a long-term solution. . . . This legislation offers predictability and simplicity.’’

Democrats were not swayed.

‘‘I’ll tell you what’s predictable: they’ll be paying more,’’ said Representative John Tierney, Democrat of Salem, Mass.

Under the GOP proposal, student loans would be reset every year and be based on 10-year Treasury notes, plus an added percentage. For instance, students who receive subsidized or unsubsidized Stafford loans would pay the Treasury rate, plus 2.5 percentage points.

Using Congressional Budget Office projections, that would translate to a 5 percent interest rate on Stafford loans in 2014, but the rate would climb to 7.7 percent for loans in 2023. Stafford rates would be capped at 8.5 percent, while loans for parents and graduate students would have a 10.5 percent ceiling under the GOP proposal.

Democrats objected to increasing the rates within a program that generates vast income for the US government.

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