Senators strike deal for long-term fix capping student loan rates

A bipartisan group of senators unveiled a deal Thursday that would provide a long-term fix to student loan rates, allowing them to float to a ceiling of 8.25 percent. 

{mosads}Following a Tuesday evening meeting with President Obama, the coalition hammered out a compromise that looks to end a months-long standoff that saw rates double more than two weeks ago because of congressional inaction.

Dealmakers hailed the accord as a healthy compromise, which also would bring both subsidized and unsubsidized Stafford loans under the same interest rate for the first time. The rate on unsubsidized loans, which lower-income students rely on, doubled on July 1 to 6.8 percent.

“This isn’t the agreement any of us would have written,” said Senate Majority Whip Dick Durbin (D-Ill.), who helped facilitate the talks. “We have come a long way in reaching common ground on a very, very difficult and challenging topic.”

Sen. Tom Harkin (D-Iowa), the chairman of the Senate Health, Education, Labor & Pensions Committee, called the deal a “great compromise,” after initially leading a bloc of Democrats in unsuccessfully pushing a one-year freeze of the lower rates.

The new compromise would allow rates on new Stafford loans to move along with financial markets, similar in a fashion to plans put forward by House Republicans and the White House.

Speaker John Boehner (R-Ohio) said earlier Thursday he had not yet seen the accord, but struck an optimistic tone for the odds the two chambers could reach a final compromise.

“I haven’t seen the details of it, but clearly, it follows the structure of the House bill,” Boehner said at a Capitol press conference. “It’s a market-based reform with market-based rates, similar to what the president called for and what the House has already passed. So when we see the details, I’m hopeful that we’ll be able to put this issue behind us.”

But the Senate deal would lock in the rate for the life of the loans when students take them out, and also includes a cap of 8.25 percent on undergraduate loans that would prevent rates from spiking to unaffordable levels. The House plan did not include a cap, and would let loan rates change from year to year.

Senate Majority Leader Harry Reid (D-Nev.) said on the Senate floor Thursday that he hoped to move the bill quickly, before Congress breaks for the August recess.

While Harkin ended up backing the compromise, another leading critic of the market-based approach, Sen. Jack Reed (D-R.I.) announced on the Senate floor that he would not back the new deal, since it could allow rates to climb above the current 6.8 percent.

“We have legislation before us that will shift more and more costs to students,” Reed said. “Students of today will be paying a lot more for their student loans and it will add to the debt of these families.”

Reed said he would offer an amendment to cap loans at 6.8 percent.

“I believe if we make it more expensive we will be less competitive and productive,” Reed said. “We can and should do better, … [so] I oppose the underlying legislation.” 

Under the new plan, the rates for all undergraduate student loans also would be harmonized. Currently, unsubsidized Stafford loans carry a higher rate than subsidized loans, which are available to lower-income borrowers. Under the bill, all undergraduate students would take out loans equal to the 10-year Treasury bond plus 2.05 percent — a deal that would bring student borrowing rates back down to 3.86 percent in 2013.

“We’re not asking some students to pay a surcharge to borrow under the student loan program so that they can subsidize others,” said Sen. Richard Burr (R-N.C.), a participant in the talks.

Graduate students, and loans taken out by parents on behalf of their children, would also get have their rates tied to Treasury bonds, and receive caps of 9.25 percent and 10.5 percent, respectively. Graduate loans would be set to Treasury bond rates plus 3.6 percent, and the so-called PLUS loans for parents would be equal to that rate plus 4.6 percent.

Sens. Lamar Alexander (R-Tenn.), the ranking member of Harkin’s committee, was also central to the talks. Sens. Angus King (I-Maine), Joe Manchin (D-W.Va.), and Tom Carper (D-Del.) also were involved with the bill that ultimately became the compromise.

The new compromise came just days after senators were able to strike a deal that moved several stalled nominees without invoking the so-called “nuclear option” to overhaul procedural rules. Those involved in the deal hoped it marked the latest sign of continued productivity in the Senate.

“My hope is that it’ll kind of get to be a habit,” Carper said.

And several Democrats indicated that they will be eager to broaden the debate over student loans to address the growing costs of a college education, likely as part of a reauthorization of the Higher Education Act sometime next year. 

Harkin called that bill an “historic opportunity to get a handle on runaway costs.” 

He also indicated that student loan rates could again be up for discussion as part of that legislation, but that it would largely depend on the outcome of a Government Accountability Office study on college costs and lending programs also mandated by the new agreement.

White House press secretary Jay Carney said Thursday that administration officials were “actively involved” in negotiations on the student loan deal.

“We were glad to see a compromise seems to be coming together, because we’re focused on making sure the rate does not double for these students,” Carney said.

Russell Berman, Ramsey Cox and Justin Sink contributed.

–This report was updated at 2:18 p.m.