Administration may delay student loans after Congress fails to meet deadline

Although Congress praised itself last week for passing a bill to keep Stafford student loan rates low, it didn’t act quickly enough, and was forced to pass a short-term bill that could lead to the administration delaying new loans for a week.

A bill allowing the Education Department to delay new loans for a week was quickly approved on Friday by the House and Senate after each chamber passed legislation that extended the low 3.4 percent interest rate on Stafford loans for another year and reauthorized federal highway spending and federal flood insurance.

{mosads}Passage of that huge bill technically beat the deadline for the July 1 expiration of the lower 3.4 percent loan rate, and the June 30 expiration of federal highway funding. But practically, Congress wasn’t fast enough, because it was expected to take several days to prepare the bill for President Obama’s signature.

In anticipation of this problem, Congress approved H.R. 6064, which provided some highway funding during this week, until the larger bill is signed into law. But on student loans, the short-term bill did not extend the 3.4 percent loan rate for Stafford loans.

Instead, it authorized the secretary of Education to delay the origination of new Stafford loans until the longer-term bill becomes law. The bill reads:

“[T]he Secretary of Education is authorized to delay the origination and disbursement of Federal Direct Stafford loans made to undergraduate students … until the date of enactment of the MAP–21, except that the Secretary may only delay the origination and disbursement of such loans until July 6, 2012.”

The Department of Education has given no outward sign that it has delayed the issuance of new Stafford loans. An official at the Department could not confirm the delay is in effect, but said it likely is in effect, and added that the delay would not necessarily be announced publicly.

Assuming the delay is in effect, it’s unclear how many Stafford loans might be postponed. One government website said Stafford loan funds are usually dispersed in the fall and winter semesters. It’s also unclear whether the delay would cause any problems for applicants.

Either way, once Obama signs the full year-long extension into law later this week, new Stafford loans will be issued again, and at the low 3.4 percent interest rate.

Secretary of Education Arne Duncan praised congressional passage of the longer-term bill that will keep the loan rate at 3.4 percent for another year.

“Investing in education is the best investment America can make to bolster our competitiveness in a knowledge-based, global economy,” he said. “If we don’t invest today, we will lose tomorrow.”

The loan rate is paid for by changes in pension rules that will result in higher tax collections from companies, as well as increased pension insurance premiums that companies pay to the Pension Benefit Guaranty Corp.