Senators announced a bipartisan deal to charge flexible market-set interest rates for student loans, legislation that would end an impasse over how to extend a program that benefits 7 million low-income students.
Undergraduate students, whether they receive subsidized or unsubsidized Stafford loans, would pay 3.86 percent in the coming academic year, lawmakers told reporters. Future interest rates would be tied to annual fluctuations in the yield of the 10-year Treasury note, they said at a news conference.
“This deal will benefit many students by reducing interest rates that they pay now below current rates” and give “protection from interest rates in the future, which may skyrocket, by creating caps” on rates, Senate Democratic Whip Dick Durbin told reporters.
The deal would roll back interest rates on subsidized Stafford student loans, which had doubled to 6.8 percent from 3.4 percent on July 1. Those loans are available to undergraduates based on financial need. The rate for unsubsidized Stafford loans, available to any undergraduate regardless of financial status, was already at 6.8 percent.
Earlier in the day, Senate Majority Leader Harry Reid said a vote on the legislation was possible as early as today. The Nevada Democrat said the goal is to get legislation to President Barack Obama’s desk before Congress leaves Washington for its August recess.
Senator Tom Harkin, the Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee, said the vote is likely to happen early next week.
The Congressional Budget Office estimated that the plan would save the government $715 million over 10 years, according to Republican Lamar Alexander of Tennessee.
“Our goal is to not make any money on the backs of students, not to cost the taxpayers anything,” said Alexander, a former U.S. Education secretary, and the top Republican on the education panel.
Under the plan, rates for both types of undergraduate Stafford loans would be set at 3.86 percent for the coming year, retroactive to July 1, Alexander said.
The group made decided that that “we would have a single rate for all undergraduate students,” he told reporters.
The compromise would peg all undergraduate Stafford loans at 2.05 percentage points more than the yield on the last auction of 10-year Treasury notes before June 1 of each year, the aides said. The rates would be capped at 8.25 percent, said Senate aides who spoke about the details on condition of anonymity.
The agreement was reached a day after members of the bipartisan Senate group, which also includes Republicans Tom Coburn of Oklahoma, Richard Burr of North Carolina and Democrat Joe Manchin of West Virginia, met with Obama to discuss the progress of their talks.
During the July 16 meeting, the president urged the lawmakers to reach a deal, White House spokesman Jay Carney told reporters yesterday in Washington. Obama called the meeting because he was “very concerned” about ending the impasse, Carney said.
Obama “certainly hopes and expects that there will be a resolution to this very soon,” Carney said.
Today, Speaker John Boehner told reporters that the Senate proposal seems to follow the structure of the House bill, “so when we see the details, I am hopeful that we will be able to put this issue behind us.”
The Republican-run House has passed legislation that would peg student-loan rates to 2.5 percentage points more than the 10-year Treasury note auction yield.
Pressure from the White House to resolve the issue threatened to politically isolate Senate Democrats, who were opposing the idea, first advanced by Obama, of linking student loan rates to the yield on the 10-year Treasury note, said a Democratic leadership aide who asked not to be identified.
The support Harkin, was important because he had backing of many other Senate Democrats. Almost 40 Democrats, including Harkin, had unsuccessfully pushed legislation to roll back the interest rate to 3.4 percent and extend it for another year.
Under the plan described by the aides, graduate students borrowing Stafford loans would pay 3.6 percentage points more than the last 10-year Treasury note auction yield, or 5.41 percent for the coming year. The yield of the last 10-yr Treasury-note auction before June 1 of this year was 1.81 percent.
The interest rate on PLUS loans, available to parents of undergraduates and graduate students, would be 4.6 percentage points more than the last 10-year Treasury note auction yield, or 6.41 percent. PLUS loans allow students to borrow the full cost of their education rather than the limited amounts allowed each year under the Stafford program.
Graduate Stafford loan rates would be capped at 9.5 percent and PLUS loans at 10.5 percent, the aides said.
The deal was sealed after Harkin relented and agreed to the plan worked out among Alexander, Manchin, Burr and Angus King, a Maine independent who caucuses with Democrats.
“We have hammered out a great compromise here,” Harkin said. “Students will not be paying 6.8 percent on their loans.”