Unless congress steps in, interest rates on government subsidized Stafford loans will double on July 1.
The increase, from 3.4 percent to 6.8 percent will hurt 7 million students. If the rate doesn't go up, the federal government is out $5.9 billion. That'll hurt the budget.
The push to hold student loan interest rates steady, or cut them back, has been a long-time cause for Democrats: they had cut the rate in half in 2007. But Republicans haven't been as keen on cutting the rates. So it came as a surprise when House Speaker John Boehner, R-Ohio, announced the House voted Friday in favor of a Republican-backed student loan bill. The catch is the proposed bill would be funded by slashing part of President Barack Obama's health care reform law.
Boehner introduced the bill at a news conference Wednesday.
“What Washington shouldn’t be doing is exploiting the challenges that young Americans face for political gain,” Boehner said.
Rick Klein, ABC's senior Washington editor, said Democrats have not reacted favorably to Boehner's proposal.
"They see this as an absolute charade and revealing the naked politics involved here," Klein said. "They think it's an outrage that Republicans would try to link student loan rates in any way to the health care law that Republicans didn't vote for and don't support. It reveals how dicey the politics are."
Both parties are pushing the other to make decisions they don't want to face. The Senate version of the bill, championed by Democrats, would cover costs by raising taxes on some high-earning private corporation owners. The Republican version calls for cuts to the Prevention and Public Health Fund, a $15 billion fund to support public healthcare, education and research.
White House spokesman Nick Papas pushed for a compromise.
“We should be able to work together to find offsets that don’t penalize middle-class families or undermine efforts to help more Americans stay healthy,” said Papas.
Ahead of Boehner's announcement, Obama spent the week touring college campuses to talk about his approach to handling student loans.
"He's been out there spending an extraordinary amount of time for the President of the United States to be focusing on one issue, hitting college campuses in three states that happen to be political battleground states," Klein said. "They think this is a good way to fire up young people and get them to consider the stakes in the presidential election."
According to Klein, student loan interest rates have become a hot button issue for both parties because students represent a key voting demographic. In the past, Republicans have not shown much support for freezing interest rates on student loans, but they are now.
"They don't want to be tagged as folks who are responsible for an enormous increase in student loan debt. This is a big problem in this country, and Republicans hear it as much as Democrats do." Klein said. "They don't want to be seen as folks who are standing in the way of people getting an education or putting a bigger burden on recent graduates."
Since Friday's vote, the White House has threatened to veto the bill. Senate Democrats have scheduled their next vote for May 8.