The nation’s college students may soon have certainty about their student loan interest rates after a bipartisan group of eight senators Thursday came to a long-awaited agreement.
The deal, which ties rates for subsidized Stafford loans to financial markets, saw concessions from Republicans and Democrats, both of whom watched their partisan attempts to address the problem go down in flames over the past several weeks.
“This compromise is a win-win for both students and taxpayers,” said Sen. Tom Coburn, Oklahoma Republican and a member of the group that announced the deal Thursday afternoon. “Tying interest rates to the market allows students to take advantage of historically low rates while ensuring taxpayers will not have to foot the bill for arbitrary rates set by Congress. I am pleased senators agreed on a permanent, principled solution instead of a short-term political fix.”
After inaction by Congress, student loan interest rates doubled July 1, rising from 3.4 percent to 6.8 percent. The House already had passed a measure tying rates to financial markets, but that approach had been met with stiff resistance from some Democrats in the Senate.
Their opposition was based on the fact that Republican proposals didn’t include a cap on just how high rates could go, meaning that students, theoretically, could be faced with double-digit interest rates in the future.
Thursday’s deal — legislatively known as the Bipartisan Student Loan Certainty Act — sets a ceiling for how high rates can rise.
For undergraduate students, interest levels never can go above 8.25 percent. For graduate students, the figure is 9.5 percent.
“I am pleased that this student loan compromise includes hard, front-end caps on interest rates — a feature that has historically been a part of the student loan program — to protect students and their families when interest rates rise,” said Sen. Tom Harkin, Iowa Democrat and chairman of the Senate Committee on Health, Education, Labor and Pensions.
The agreement announced Thursday offers a permanent solution, and saves Congress from continuing the year-to-year debate over interest rates.
Last year, just before rates were set to rise, lawmakers kicked the can down the road for a year, promising to address a long-term solution before July 1.
When that didn’t happen, political observers and many in the higher education community feared that the House and Senate would again resort to a short-term, stopgap measure that preserved rates at 3.4 percent for another 12 months.
It would’ve been even more difficult for lawmakers to agree on a permanent fix next year, with midterm elections looming in November 2014.
In addition to Mr. Harkin and Mr. Coburn, the other senators who helped craft the deal are: Sen. Lamar Alexander, Tennessee Republican; Sen. Richard Burr, North Carolina Republican; Sen. Joe Manchin III, West Virginia Democrat; Sen. Angus S. King Jr., Maine independent; Sen. Richard J. Durbin, Illinois Democrat; and Sen. Thomas R. Carper, Delaware Democrat.
The White House has expressed support for tying rates to financial markets, and President Obama and Education Secretary Arne Duncan have called for a long-term solution like the one announced Thursday.