SENATE PASSES VOTE TO KEEP STUDENT LOAN INTEREST RATES DOWN AFTER LONG FIGHT

STUDENT INTEREST LOAN

A hard fought deal to keep student loan interest rates down cleared the Senate Wednesday on a 81-18 vote, despite strong opposition from liberal Democrats who believe it would make skyrocketing student debt even worse in the long run.
The vote represented a significant breakthrough after months of stalemate and weeks of negotiations between the two parties to find a long-term solution on student loans. And it showcased a deep split among Democrats: Many were skeptical about tying students’ interest rates to market rates expected to rise in future years.

The bill ties rates for new student loans to the government’s cost of borrowing, and it reverses the July 1 doubling of interest rates on subsidized loans. The House is expected to act on the measure in the next week, and the Obama administration supports the bill.

The bill sets interest rates this year at 3.86 percent for all new undergraduate Stafford loans, 5.4 percent for graduate Stafford loans and 6.4 percent for PLUS loans for parents and graduate students. The rates are tied to the rate on 10-year Treasury bonds.

If interest rates rise, student rates are capped: undergraduate loans at 8.25 percent, graduate loans at 9.5 percent and PLUS loans at 10.5 percent. That means rates could go higher than they are now before hitting the caps.

The measure closely hews to the Obama administration’s interest rate proposal from earlier this year. But many Democrats would have preferred lower caps on interest rates or an extension of the low, fixed 3.4 percent rate on subsidized loans. Most of the 18 senators voting “no” were Democrats who criticized the bill as unfair to students.

Sen. Elizabeth Warren (D-Mass.) compared the bill’s promise of low rates this year and higher rates in the future to an the interest rate used to lure people into signing up for a new credit card or a subprime mortgage.

“I cannot support a plan that asks tomorrow’s students to pay more in order to finance lower rates today,” said Warren, who voted against the bill. “We should be doing everything we can to invest in students and offer them the best deal we can on student loans.”

The Congressional Budget Office projects interest rates won’t begin to push up against the bill’s caps for at least four years. Congressional Republicans and others have argued that a cap isn’t necessary because income-based repayment programs exist for students who have trouble repaying their loans after graduation.