Congress Approves Student Loan Deal

Obama said he would quickly sign the bill, which is expected to affect millions of students.

Rep. Cathy McMorris Rodgers, R-Wa., talks about student loans on Capitol Hill on July 31, 2013. The bill passed by Congress would lower interest rates for all types of student loans, at least for the near future.

Rep. Cathy McMorris Rodgers, R-Wa., talks about student loans on Capitol Hill on July 31, 2013. The bill passed by Congress would lower interest rates for all types of student loans, at least for the near future.

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Putting an end to months of congressional gridlock, the House voted on Wednesday to approve a bill that will retroactively lower interest rates on student loans. Students taking out federally subsidized Stafford loans this fall, for example, can expect to see a rate of 3.86 percent.

The House voted 392-31 to approve the Bipartisan Student Loan Certainty Act of 2013, which passed through the Senate earlier in July and now heads to the president, who has said he would swiftly sign it. The legislation ties interest rates to the 10-year Treasury note and locks in individual rates for the life of each loan.

[READ: How the Student Loan Interest Rate Deal Affects Grad Students]

Congress was tasked with devising a plan by July 1 that would prevent interest rates on student loans from increasing. But when lawmakers failed to do so, interest rates for subsidized Stafford loans, which are available to undergraduate students, doubled from 3.4 percent to 6.8 percent. Under current law, graduate loans are fixed at 6.8 percent, and PLUS loans currently carry a rate of 7.9 percent.

The bill passed by Congress would lower interest rates for all types of student loans, at least for the near future. Undergraduate loans issued for the coming school year would carry a rate of 3.86 percent, while graduate and PLUS loans would be offered at 5.4 percent and 6.4 percent, respectively.

The House passed a nearly identical bill, along party lines in May. But heated debate continued for months, as a slew of different proposals, including one that would extend the lower rates for another year, failed to gain enough support.

[ALSO: Student Loan Rate of 6.8 Percent Wasn't Always So Scary]

"This didn't need to be a partisan issue, and I'm pleased that common sense ultimately prevailed," said Rep. Martha Roby, R-Ala., in a statement. "This shows what progress can be made when we focus on solving the problems Americans face every day."

The legislation ties interest rates to the financial market, which means rates for new loan applicants will likely increase as the economy improves. Under the original House bill, interest rates could change throughout the life of the loan. The bipartisan deal locks in the interest rates for the life of each loan and offers slightly lower rate caps – undergraduate loan interest rates can never surpass 8.25 percent, while graduate loans are capped at 9.5 percent and PLUS loans are capped at 10.5 percent.

Secretary of Education Arne Duncan praised the compromise and said it will offer relief to millions of students.

"Education is a cornerstone of a strong middle class, and keeping student interest rates low is just part of our commitment to making a college education accessible to every single American willing to work for it," Duncan said in a statement.

[REPORT: Student Debt Relief Companies Profit From Borrower Confusion]

But many students and advocacy groups have denounced the bill, despite the fact lawmakers and the White House have said it should be considered a major victory. They expressed concern that the interest rates could rise above their current levels, and likely will, before reaching the proposed caps.

Current projections estimate the rates will stay below 6.8 percent for the next five years, but because they are pegged to 10-year Treasury notes, they fluctuate with the market.

Rep. George Miller, D-Calif., supported the bill, but said it does not solve the "long-term student debt crisis."

"We must remain on guard against any unacceptable rises in interest rates," Miller said on Wednesday. "In the meantime, we now have a bill that will make a positive difference for families struggling to pay for college."

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