The Senate voted on Wednesday to pass a bill that, if enacted, will retroactively lower student loan interest rates that doubled to 6.8 percent on July 1, instead tying the rates to the market. The bill now heads to the House for a vote, likely within the next week.
Legislators voted 81-18 to pass the bill, the Bipartisan Student Loan Certainty Act of 2013, which its proponents say it is a compromise and should be considered a win for students. Under the bill, undergraduate Stafford loans would be offered at 3.86 percent, graduate student loans would be offered at 5.4 percent and parent PLUS loans would be offered at 6.4 percent for the coming school year.
When Congress failed to come to a compromise before a July 1 deadline, interest rates doubled for undergraduate subsidized Stafford loans, from 3.4 percent to a fixed rate of 6.8 percent. Graduate loans are fixed at 6.8 percent, and PLUS loans currently carry a rate of 7.9 percent. But unlike current law, the bill the Senate passed would peg interest rates to the market, meaning they would change year to year.
Education Secretary Arne Duncan said in a statement that the compromise the Senate reached is a "major victory" for 11 million college students, who he said would save roughly $1,500 in interest on each loan.
"Keeping student interest rates low is just part of our country's commitment to placing a good education within reach for all who are willing to work for it," Duncan said. "There is much more work to do to bring down the cost of college, and all of us share responsibility for ensuring that college is affordable for students and families around the country."
The bill also includes interest rate caps for loans for undergraduate students, graduate students and parents, making sure the rates cannot rise above 8.25 percent, 9.5 percent and 10.5 percent respectively. And although the bill brings a drawn-out stalemate near an end and would provide relief for students in the next few years, some Senate Democrats, such as Tom Harkin of Iowa and Elizabeth Warren of Massachusetts, strongly opposed the bill, saying it would reduce the deficit "on the backs of students."
One point of contention comes from a Congressional Budget Office report that projects that the bill would save taxpayers $715 million over the next 11 years. And because the rates would be tied to a 10-year Treasury note, they would fluctuate with the market and are projected to start approaching those caps within a few years. Current interest rate projections show that the bill would keep rates below 6.8 percent for the next five years.
Warren, along with Sen. Jack Reed, D-R.I., unsuccessfully pushed for an amendment to the bill that would have lowered those caps to 6.8 percent for both undergraduate and graduate loans, and to 7.9 percent for parent loans.
"We must invest in our kids, bring down the skyrocketing costs of college and tackle the more than trillion dollars in student loan debt that is crushing middle class families and threatening our economy," Warren said in a statement.
Many student and advocacy groups also expressed their disappointment with the bill, particularly because interest rates may rise for future students.
The Education Trust, an education advocacy group, called the deal a "missed opportunity," while Christine Lindstrom, the higher education program director at U.S. Public Interest Research Group, said the "bottom line" is that students will end up paying more than if Congress left the rates doubled at 6.8 percent.
The bill now moves to the House for consideration, where it will likely come to a vote within the next week.
"I am pleased we finally have a Senate agreement worthy of public support," Rep. John Kline, R-Minn., who chairs the House's education and workforce committee, said in a statement. "This is a victory for students and taxpayers, and I look forward to the bill's swift passage in the House."