Senate Tries to Hammer out Student Loan Interest Rate-Hike Compromise: Tying it to Treasuries?

Um this might not be a good idea with treasury rates going higher once the FED stops the money printing presses.

Interest rates for subsidized undergraduate loans, which are currently fixed at 3.4 percent, will rise to 6.8 percent on July 1 unless Congress acts.

The Bipartisan Student Loan Certainty Act ties interest rates on new student loans to the 10-year Treasury note and adds an additional 1.85 percent to subsidized and unsubsidized undergraduate Stafford loans. The proposal adds 3.4 percent to the Treasury rate for graduate Stafford loans and 4.4 percent for PLUS loans, which are issued to parents of students.

So that means whenever there is a rate hike when the economy improves student loan rates leap higher? Maybe if they tied it to inflation plus a certain fixed percentage it would be more palatable because it is the FEDs job to keep inflation in check. So student loan rates are kept low by someone that has the power to keep it down.

I guess a student can build an interest rate hedge if they are short Treasuries as the rates rise. That way when the 10 year treasury inevitably shoots higher they are somewhat protected. In any case the idea that their loan rate doubles on July 1st will probably not go down so well after they are expected to pay for the bulk of Obamacare.