Following a meeting at the White House, senators announced they have reached a fragile agreement to keep students returning to college this fall from seeing their student loan interest rates double.
Lawmakers reached a deal late Wednesday night that would retroactively lower interest rates for students on subsidized Stafford loans.
On July 1, the interest rates on the loans doubled from 3.4 percent to 6.8 percent. While many Democrats had advocated to simply extend the 3.4 percent interest rate for another year, Republicans and the president had advocated to tie the student loan interest rates to a market rate. Republicans in the House had passed a bill that did exactly that in May.
Under the new deal, undergraduate, graduate and PLUS loans, which parents take out on behalf of their children, will all be tied to Treasury notes plus and added percentage.
For undergraduates, Stafford loans will be offered at 3.86 percent. That means they will take out loans at a slightly higher interest rate than they did in the spring. Graduate students and parents, however, will see their interest rates drop on loans. Graduate students will be offered loans with a 5.4 percent interest rate. And parents can take out loans for their children at 6.4 percent.
The framework is expected to lower the deficit by an estimated $715 million during the next decade, according to the Associated Press.
In order to sign onto a deal, Democrats demanded that a cap be set to keep interest rates from skyrocketing as the economy improves.
For undergraduates, the loan interest rates will never rise above 8.25 percent and graduates will never see their loans reach above 9.25 percent.
Moderate lawmakers are credited with ushering in a final deal for their parties. Sen. Richard Burr, R-N.C., and Sen. Joe Manchin, D-W.Va., worked for two weeks to find a deal that satisfied all parties. It is expected to officially be announced Thursday.
Correction 07/18/13: An earlier version of this story incorrectly stated how loans were doubling. The interest rates of the loans could double.