After months of uncertainty and partisan bickering, President Barack Obama signed into law a student loan deal on Friday that will retroactively lower interest rates for millions of college students.
The new law ties student loan interest rates to the market and locks in the rate for the life of the loan. But as the economy improves, students may see interest rates rise above current levels because the rates can change from year to year. For the coming school year, undergraduates can take out federally subsidized Stafford loans at an interest rate of 3.86 percent, while graduate and PLUS loans will be offered at 5.41 percent and 6.41 percent, respectively.
The law also guarantees a cap on loan interest rates, ensuring that undergraduate rates can never rise above 8.25 percent, while graduate loans are capped at 9.5 percent and PLUS loans have a limit of 10.5 percent.
When Congress failed to take action before a July 1 deadline, interest rates doubled on undergraduate Stafford loans, from 3.4 percent to 6.8 percent. Meanwhile, graduate loans were fixed at 6.8 percent and PLUS loans were to be offered at 7.9 percent.
Lawmakers struggled for months to come to a compromise, with several different measures failing to gain a majority support between the two houses. But the Bipartisan Student Loan Certainty Act of 2013, as it is known, quickly gained support and moved through both the Senate and the House in a matter of weeks before being sent to Obama for final approval.
"We can finally put behind us the annual game of Congress playing politics with student loan interest rates at the expense of students planning their futures," said Sen. Lamar Alexander, R-Tenn.
Rep. John Kline, R-Minn., who chairs the House Education and the Workforce Committee, said he was pleased that the bill has become law and that the compromise marks a "great day ... for all Americans."
"Seeing this bipartisan proposal become law reminds us of what can be accomplished through hard work, compromise, and faith in the legislative process," Kline said in a released statement. "I look forward to building upon this success as we work toward other shared goals."