Since the United States does not actually have the money to give out Stafford Loans, it has to first borrow the money from investors and other countries, paying them interest as the government loan is repaid. With the CBO projecting that 10 year treasury bond interest rates will rise to 5.2 percent by 2017 (up from 2.1 percent in 2013), it is estimated that Stafford loan subsidies would cost taxpayers 41 billion over the next decade if restored to the old 3.4 percent rate.
The federal government already loses 3 cents for every one of the billions of dollars it lends out through subsidized Stafford loans, largely due to growing default rates. While the new bill will not solve the problem of loan defaults, it is expected to help stop much of this monetary loss with 715 million in additional revenue over 10 years.
The upside of the new rates are that they create something badly needed by students and the government, student loans that are pretty much revenue-neutral. Believe it or not, according to the CBO, the federal government is projected to make a whopping 173 billion dollars off student loans over the next 10 years. (Side Note: Much of that money will go to fund the Affordable Care Act, in what many would consider a cheap trick, to puff up the bill's budgetary benefits on the back of students–to the tune of 8.7 billion per year).
This revenue largely comes from unsubsidized Stafford loans made to students who do not meet the financial requirements that come with subsidized Stafford loans and PLUS loans made to parents of dependent students that have rates currently as high a 7%.
This brings me to my final point, that the best way to fix federal student loans is to now expand the 'subsidized' Stafford loan program (which isn't very subsidized anymore) to include parents of dependent students and all students who do not have enough money to go through college without taking on debt.
Another solution would be to also raise the cap on 'subsidized' loans that could be taken out from its current palty maximum of $5,500, to something more reasonable. For comparison, the Collegeboard estimates that average public two year college costs an average of $15,586 per year to attend once tuition, room and board, transportation, and supplies are taken into account. If that seems expensive to you, view the statistics on Public In-state, Public Out-of-State, and Private Universities at your own risk.
As always there will be a fight, as banks would surely not be pleased to have the federal government offering student loans at lower rates then they are, and the deficit would grow by about 10.3 billion per year (from lost profits). However, some Republicans like Rep. Tim Walberg (R-MI) view the profits as equivalent to taxing students, and rank-and-file Tea Party Representatives would surely love a chance to take away some of the AFA's funding.
In conclusion, on the issue of student loans there is room to compromise, and if the willpower and political courage can be found, Congress can forge a deal to reform student loans and increase access to higher education.