On Tuesday night, a small bipartisan group of senators met at the White House to discuss plans to fix the interest rates on student loans. The exact details of the plan are still being drafted, but a formal release is expected soon.
“Under the deal, all undergraduates this fall could borrow at 3.85 percent interest rates. Graduate students would have access to loans at 5.4 percent, and parents would be able to borrow at 6.4 percent. Those rates would climb as the economy improves and it becomes more expensive for the government to borrow money,” the Associated Press reports. According to the AP, the rates for undergraduate loans would never be able to rise higher than 8.25 percent.
A temporary interest rate reduction expired at the beginning of July, allowing the rate for new subsidized student loans to double from 3.4 to 6.8 percent. A GOP Senate aide called Tuesday’s meeting “promising, encouraging,” and said, “the president is on our side.” But some Democrats, notably Senator Harkin, are wholly opposed to all of the plans on the table.
A House Republican bill, similar in basic structure to the plan laid out by Obama in his budget proposal, had grown cold in the Senate and a Democratic proposal to extend the temporary 3.4 percent rate for another year failed to gain enough votes to overcome a filibuster. The last politically viable solution is a bipartisan deal, which, like the plans proposed by Obama and the House Republicans, would tie interest rates to the 10-year Treasury note. This would make the fluctuation of student loan rates somewhat market-based, rather than constantly at the mercy of congressional whim.
According to reports, a vote in the Senate could be held sometime this week or next. The matter is not particularly urgent yet, since the recently doubled rates only apply to new subsidized loans, and very few people take out loans in July. But as the school year and the August recess inch closer, students will demand lower rates, and neither side wants to be accused of keeping rates high. Democrats, led by Harry Reid, have denounced Republicans for aiming to “reduce the deficit on the backs of students and middle-class families” (as Reid’s spokesman put it), but Senator Manchin’s (D-W.Va.) recent bipartisan proposal was only projected to reduce the deficit by $1 billion over a 10-year period, even less than Obama’s plan, which would reduce the deficit by $3 billion over the same period. These are both small fractions of the overall cost of the student loan program.
A senior GOP Senate aide told me that if the White House comes out in favor of a bipartisan deal, this issue would get resolved the next day. “It’s unsustainable for Democrats to be against this, it’s like us being against tax cuts,” said the aide. Unless Senator Harkin can convince the White House otherwise, the student loan program appears to be headed for change.
A permanent fix on student loans will take a potentially potent issue off the table for Democrats in the 2014 mid-term elections. In the summer of 2012, President Obama crisscrossed the nation’s college campuses to hammer House Republicans for allowing student loan rates to double. Democrats conveniently glossed over the fact that the “rate-doubling” from 3.4 percent to 6.8 percent only applied to new, subsidized Stafford loans. Congress eventually caved and agreed to extend the rates for one year. It’s no surprise that some Democrats wanted another year-long extension, which would have put the issue on the front-burner again in the summer of 2014. But it looks like they aren’t going to get their way.