A bipartisan Senate deal to cancel the doubling of a popular student loan rate by pegging the interest to market fluctuations will have to wait until next week for a vote, while Democratic leaders placate dissenters within their ranks.
The agreement announced yesterday by Republican and Democratic negotiators after weeks of talks aims to break the legislative logjam that prevented Congress from acting to avert the July 1 doubling of the Stafford subsidized loan rate from 3.4 percent to 6.8 percent.
The accord backed by the Obama administration would lower rates for all 11 million undergraduate Stafford borrowers in the coming academic year. Congress faces a looming deadline on the issue -- it must pass legislation before lawmakers leave Washington for a five-week recess after Aug. 2 to ensure that students who begin borrowing next month aren’t hit by the higher rates.
The Republican-backed market-based approach had been opposed by many Democratic senators. Still, the Democrats faced enormous pressure to resolve an issue that has such a pocket-book impact on so many voters.
The deal was spurred by last-minute presidential arm-twisting and probably has majority support in the chamber. The Senate’s Democratic leaders, though, decided to delay an immediate vote on the measure to allow some of their colleagues time to make their case for an alternative approach.
A group of Democrats who led the resistance to the idea of flexible-rate loans -- which was first proposed by President Barack Obama -- will get a chance to offer at least one amendment, said Democratic leadership aides. Allowing debate on the amendments could put off the vote until July 24, said the aides, who spoke on condition of anonymity while the legislative maneuvering continues.
The delay would give Rhode Island Democrat Jack Reed, who has opposed the compromise, a chance to introduce his amendment to cap undergraduate loan rates at 6.8 percent, the aides said. That would be lower than the 8.25 percent rate limit in the compromise reached by negotiators led by Democratic Whip Dick Durbin of Illinois and Republican Senator Lamar Alexander of Tennessee.
Reed said the 6.8 percent cap is needed because under the compromise “inevitably, mathematically, those rates will go beyond 6.8 percent.”
He made his comments on the floor yesterday as the bipartisan group was announcing the terms of the deal, which had been struck late July 17.
The compromise “will increase the cost of education of students” as interest rates rise, Reed said.
Vermont Senator Bernie Sanders, an independent who caucuses with Democrats, may also get a chance to offer an amendment that would end the new rate-based loan framework in two years.
The compromise measure would save the government $715 million over 10 years, according to a Congressional Budget Office analysis. Those savings were criticized as unfairly disadvantaging student borrowers by Massachusetts Senator Elizabeth Warren, a Democrat who won election last year on a pledge to crack down on unfair lending and investment practices of big banks.
“Our students are drowning under a $1 trillion in loan debt,” Warren said in a floor speech yesterday. “I cannot support a compromise proposal that squeezes even more profits off our kids.” Congress must “eliminate government profits from new student loans, period,” she said.
Her opposition sparked a rebuke from Durbin, who rushed to the floor to urge her to understand the need for compromise.
“We can do better for students,” Durbin said. “But we don’t have the votes,” he said in floor remarks responding to Warren.
Durbin said Warren and other opponents of the deal need to “accept the political reality” that their goals wouldn’t pass a politically divided Congress.
Dissident Democrats had allies among student advocacy groups.
“The student-loan interest rate compromise reached by the Obama administration and Senate negotiators from both parties is more a missed opportunity than a cause for celebration,” Lauren Asher, president of the Oakland, California-based Institute for College Access & Success, said in a statement. “While Senate Democrats succeeded in including caps on how high rates can rise, the agreement is still projected to cost students more, not less.”
Substantial support exists among Senate Republicans for the compromise, according to a Republican Senate aide who spoke on the condition of anonymity.
The agreement was embraced by Senate Minority Leader Mitch McConnell, a Kentucky Republican, who said in a statement it “is what should’ve been agreed to weeks ago.”
The Republican-run House has already passed its version of market-based student loan legislation, capping rate increases at 8.5 percent. Speaker John Boehner, an Ohio Republican, suggested yesterday that the House was considering taking up the Senate proposal because it followed the structure of the House measure.
“So when we see the details, I am hopeful that we will be able to put this issue behind us,” he said.
Lawmakers have said the House and Senate needed to act before the recess to ensure that students who begin borrowing money next month to finance their college educations don’t pay the higher rates that went into effect on July 1.
Under the compromise, rates would be tied to the yield on the last auction of 10-year Treasuries before June 1. This year that yield was 1.81 percent. Undergraduate Stafford loans would be marked up 2.05 percentage points so students will pay 3.86 percent for the coming academic year. The deal is retroactive to the July 1 expiration of the 3.4 percent rate for subsidized Stafford loans.
Unsubsidized rates were already at 6.8 percent and the bipartisan agreement will lower rates for all 11 million undergraduate Stafford borrowers to 3.86 percent in the coming year, lawmakers said.
Republicans couldn’t “envision that we would charge a student one interest rate and charge a student sitting at the next desk a different rate,” said Senator Richard Burr, a North Carolina Republican and one of the negotiators.
Middle-income students shouldn’t be required to pay a “surcharge” so “they can subsidize others” paying lower rates, he said yesterday. “That is insane and we have now done away with that.”
Durbin, citing CBO projections, said interest-rate increases wouldn’t push the undergraduate student loan rate to more than 6.8 percent for five years.
“Doing nothing means that students that would be protected with lower interest rates for four out of the next five years” would pay 6.8 percent for the whole period, Durbin said. “How is that a victory for students?”