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Transportation Bill Includes Student Loan Interest Rate Fix

June 29, 2012

On Friday, June 29, 2012, both the House and Senate approved the conference report for the Surface Transportation Extension Act of 2012 (H.R. 4348). The legislation includes a one-year extension of the 3.4 percent interest rate on federally subsidized student loans, which was schedule to double to 6.8 percent on July 1, 2012.

The transportation legislation will maintain the current levels of spending (plus an inflation adjustment) on federal road, bridge, and mass transit projects for 27 months-until September 2014. It is the first comprehensive reauthorization of highway and public works spending since 2005.

The $120 billion deal maintains an 18.4-cents-a-gallon gasoline and diesel tax and generates revenue through additional pension-related provisions. A Senate proposal (which NACUBO reported to members on May 3, 2012) to stabilize pension interest rates was included in the legislation, as well as a provision to raise company premiums for the Pension Benefit Guaranty Corporation. The money generated from these moves generates the $6 billion needed to keep the Stafford loan rate the same for the coming school year. The conference agreement also limits students' access to federally subsidized loans to 150 percent of their program length.

The proposal to limit the duration of borrowers' in-school interest subsidy for subsidized Stafford loans to 150 percent of the normal time required to complete their educational programs was originally proposed in President Obama's FY12 Budget request and again in the FY13 Budget request. CBO estimated in March that the Administration's proposal would reduce the deficit by $475 million over the 2012 to 2017 period.


Liz Clark
Senior Director, Federal Affairs