Students across the country can exhale—for a few years, at least.
The Senate passed a bill Wednesday to address loan rates, which had doubled this summer for subsidized students to 6.8%. Under the new plan, rates are likely to rise over the coming years, but will not hit their current levels for some time. Speaker of the House John Boehner said he was hopeful that the bill would make it through the House without too much trouble.
The bill ties student loan rates to the 10-year Treasury note plus 2.05% for undergraduates, 3.6% for graduates, and 4.6% for PLUS loans, which both parents and graduate students can take out. Democrats won a provision to place a cap on the rates, which has been a key sticking point for the party. Undergraduate rates will be capped at 8.25%, graduate rates at 9.5%, and PLUS rates at 10.5%, if interest rates rise in coming years. The change in rates will apply retroactively to any students who have taken out loans since July 1.
For the past year, subsidized students had rates of 3.4% while unsubsidized students had rates of 6.8%, and the bill puts both of those rates at roughly 4% for students taking out loans for the upcoming semester, depending on what happens to the Treasury note. This amounts to an increase of half a percentage point for subsidized students and a nearly three point drop for unsubsidized students. Graduate loans, this year at 6.8%, will have roughly 5.5% rates and PLUS loans will have roughly 6.5% rates, down from the past semester’s 7.9%—a decrease of 1.3% and 1.4%, respectively.
Many Democratic senators had advocated voting to keep subsidized rates at 3.4% for another year, giving the Senate time to work out a permanent plan. The postponement plan fell to Republican filibusters twice, most recently on July 10.
The vote ends the long trudge towards a bipartisan agreement, which crystallized a week ago in a meeting in Majority Whip Dick Durbin’s office, following a meeting the day before in which President Obama urged senators to wrap up negotiations. Since then, further pressure from the White House and a bipartisan coalition of Senators has pushed the legislation past a group of Democrats displeased by the higher rates future students will face under the bill.
Democratic negotiators, led by Senator Tom Harkin (D-Iowa), had hoped for a budget neutral plan that would not have student payments go to reducing the deficit, and Harkin believed that the deal had gotten as close as possible to deficit neutral. The final deal would reduce the deficit by $715 million over 10 years.
“We have to deal with the art of the possible,” Harkin said before the vote, and he rejected the failed amendment Democratic Senators Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island introduced to lower the rate caps as a protective measure because it was too expensive.
Democracy for America (DFA), a liberal political action committee (PAC), reacted with outrage. The organization, which supports Warren’s plan to drop student loan rates to match the ones big banks enjoy, called the deal “craven.” “This raw deal is built on the backwards notion that students are merely Washington cash cows waiting for the slaughter rather than national assets to be built up and invested in,” said Jim Dean, the organization’s Chair.
Democratic Senator Barbara Boxer of California also called for better repayment options, but lamented the permanence of the “so-called ‘deal,’” saying that the bipartisan coalition was “not going to revisit this issue.”
“Oh we’re going to make it easier on you students by piling another $715 million in debt on your backs and your parents,” she said sarcastically on Wednesday. “Aren’t we proud, federal government, this is great.”
Sen. Durbin and Joe Manchin, a Democrat of West Virginia and one of the leaders of the coalition, tried to soothe their colleagues by mentioning that the Senate could revisit the legislation and bring up amendments when it revises the Higher Education Act in the fall, or even further down the line.