Student loan debate
After the defeat of one measure in the Senate, a deal in the works would give undergrads better terms.
Associated Press
WASHINGTON — The defeat of a student loan bill in the Senate on Wednesday cleared the way for fresh negotiations to restore lower rates.
An emerging deal to lower interest rates on student loans took shape Thursday, offering Democrats promises that interest rates would not reach 10 percent and giving Republicans a link between borrowing terms and the financial markets.
Lawmakers and their aides were in talks about how they might reduce rates on subsidized Stafford loans, which doubled to 6.8 percent last week in the wake of congressional inaction.
Efforts to restore those rates to 3.4 percent were abandoned in favor of a new compromise that bears many similarities with a bill that House Republicans have passed, and with President Barack Obama’s budget proposal.
“There is no question that there is a compromise available on this important issue and that the sides have not been that far apart and we just need to get it done,” White House spokesman Jay Carney said.
Under the plan lawmakers are considering, interest rates on new loans would be based on the 10year Treasury note, plus an additional percentage to pay for administrative costs. The proposal includes a limit on how high rates could climb, a demand Democrats said was a deal-breaker.
Undergraduate students would see better terms than the current 6.8 percent rate but could face higher costs if the economy improves and Treasury notes become more expensive. Rates for students this fall would be around 4 percent and would be capped at 8.25 percent in future years.
Graduate students and parents could find better deals next year but again would face higher rates than the current 7.9 percent. Borrowing for those PLUS loans would be around 6 percent this fall and capped at 9.25 percent in coming years.
Lawmakers were working on specific rates, but both parties were in rough agreement on the numbers.
Republicans and a few Democrats on Wednesday blocked a White House-backed proposal that would have restored 3.4-percent interest rates on subsidized Stafford loans for one more year. The failed stopgap measure was designed to give lawmakers time to take up comprehensive college affordability legislation and dodge 6.8 percent interest rates on new loans.
Without congressional action, the increase could mean an extra $2,600 for an average student returning to campus this fall, according to Congress’ Joint Economic Committee.