After weeks of negotiations, senators reached a deal Wednesday to retroactively reduce some student-loan rates and to change how many of the federal student-loan rates are calculated.
Hours after the deal was reached, Majority Leader Harry Reid, D-Nev., took to the Senate floor Thursday and said, "It's possible we could vote today" on the deal.
Interest rates on subsidized Stafford student loans doubled from 3.4 percent to 6.8 percent July 1. The new deal brings that rate back down and ties both subsidized and unsubsidized rates to the market, with caps on individual loans.
The agreement is based on a proposal crafted by a bipartisan group of senators, including Joe Manchin, D-W.Va., Angus King, I-Maine, Lamar Alexander, R-Tenn., Tom Coburn, R-Okla., and Richard Burr, R-N.C.
Senators—including Manchin; King; Tom Harkin, D-Iowa.; Dick Durbin, D-Ill.; Alexander; Burr; and Coburn—met at the White House on Tuesday with President Obama, where student loans were discussed, according to Senate aides.
Harkin, as well as other Senate Democratic leaders, had been pushing back against the deal being crafted by the senators, saying it reduced the deficit on the backs of students and would eventually lead to higher rates.
But the pressure grew this week, particularly after the White House meeting, where Obama expressed support for the deal, according to a Senate GOP aide.
Harkin agreed to the plan during a Wednesday meeting in Senate Majority Whip Durbin's office, several aides confirmed, and a Senate aide confirmed that Harkin he will vote for it.
Harkin's support signals that the logjam over negotiations has been broken. He chairs the Health, Education, Labor, and Pensions Committee.
Whether the House will also take up the deal remains unclear. House Speaker John Boehner said on Thursday that he hadn't seen the details of the deal but said it followed the structure of the House bill and that he's hopeful about resolving the issue. A House leadership aide added that Republicans are "encouraged the Senate finally agrees with the House that a permanent fix that protects both students and taxpayers is needed."
The agreement ties loan interest rates to the 10-year Treasury note. Both subsidized and unsubsidized Stafford undergraduate loans would add 2.05 percent on top of the T-note, with an 8.25 percent up-front cap on individual loans.
Graduate loans would add 3.6 percent to the Treasury note, with a 9.5 percent cap, and PLUS loans—available to graduate students and parents of undergraduates—would add an additional 4.6 percent, with a 10.5 percent cap. The Congressional Budget Office scores the proposal at about $700 million.
"We have a plan that ought to save students in 11 million families billions of dollars. And we've had a good discussion with Senator Harkin and Senator Durbin," Alexander said after the meeting in Durbin's office. "We'd like to be able to do this together, and we hope we can, and we hope we will come to a decision right away, because families need to make their plans."
"The House can hopefully accept it, send it to the president, and it [can] all be done by the end of the month," Alexander added.
The House passed a bill in May that also ties student-loan rates to the 10-year Treasury note with percentages on top, but its bill lacks up-front caps on individual loans and allows rates to fluctuate yearly. The White House budget plan also tied rates to the 10-year Treasury note but included different additional percentages for subsidized and unsubsidized loans.
In recent weeks, Democrats had been warming to the idea of tying interest rates to a market instrument, particularly after a second attempt at freezing the 3.4 percent rate failed in the Senate in July. Unsubsidized loan rates have remained constant at 6.8 percent.
But Democrats had insisted that any deal include caps on individual loans, saying that as the economy improved, interest rates could soon exceed the 6.8 percent rate it had risen to on July 1. Such a cap had been missing from the initial compromise hashed out by Manchin, King, Alexander, Burr, and Coburn.
But last week, several proposals, including one by the bipartisan group of senators and from the White House, included such a cap, setting off a back-and-forth with CBO to adjust figures, with the idea that a final deal would be deficit-neutral.
Michael Catalini contributed contributed to this article.