The Senate voted Wednesday to roll back a student-loan interest-rate hike and restructure the way many federal student-loan rates are calculated.
The vote, 81-18, came after weeks of negotiations by a bipartisan group of senators that also exposed a divide between many Senate Democrats and the White House over how to handle an automatic rate hike on subsidized Stafford loans.
"If I were to write this bill and I could have it my way, this is not what I'd write, I understand that," Health, Education, Labor, and Pensions Committee Chairman Tom Harkin, D-Iowa, said on the Senate floor Wednesday before voting for the deal. "But it wouldn't be what my friends on the other side would write either, and that is the art of compromise."
Interest rates on new subsidized Stafford loans, which are need-based and available to undergraduates, doubled from 3.4 percent to 6.8 percent on July 1. The deal that passed the Senate ties interest rates on any loans taken since July 1 to the 10-year Treasury note, with the rate equaling 3.86 percent this year.
The House passed a student-loan bill in May tying rates to the 10-year Treasury note; that bill faces a White House veto threat even though it reflects an approach the Obama administration took in its budget plan. The Senate-passed version, which received White House backing, resembles the House bill but differs slightly on rates and doesn't allow rates to fluctuate over the life of individual loans.
Democratic senators who have spoken to House leadership say they're optimistic the House will pass the Senate provisions.
The pressure had been on the Senate this summer first to avert and then turn back the July 1 rate hike, particularly after the failures of two Democratic efforts—both backed by President Obama—to temporarily freeze the 3.4 percent rate. Meanwhile, a long-term deal came out of negotiations among a bipartisan group of senators, including Joe Manchin, D-W.Va.; Angus King, I-Maine; Lamar Alexander, R-Tenn.; Richard Burr, R-N.C.; and Tom Coburn, R-Okla.
Harkin led other Democratic senators in initially balking at the deal, which originally lacked a rate cap on individual loans. After several meetings on student loans convened by Majority Whip Dick Durbin, D-Ill., including one at the White House with Obama present, Harkin threw his support behind a compromise that included a front-end cap.
But support by the likes of Harkin, Durbin, and Obama failed to sway a number of 16 Democrats who voted against the deal. Opponents of the bill have said interest rates could rise above 6.8 percent if the Treasury note increases, as it's expected to, and that the deal makes money off students. The Congressional Budget Office estimated the deal would reduce the deficit by $715 million, which supporters of the agreement say amounts to a rounding error.
"I know it's not easy for a lot in here," Manchin said on the Senate floor Tuesday. "At the end of the day, I really believe we can walk away knowing we were able to do better today than nothing at all."
At least four Democratic amendments were initially floated, but in the end only two amendments, including one by Sen. Bernie Sanders, I-Vt., that would provide a two-year sunset to the bill, were offered.
Sanders called the deal a "disaster," saying from the Senate floor that "this bill makes a bad situation worse, not better." Other Democrats, including Sens. Patrick Leahy of Vermont, Ron Wyden of Oregon, Sheldon Whitehouse of Rhode Island, and Kirsten Gillibrand of New York, cosponsored Sanders's proposal, underscoring liberal apprehension about the agreement.
Even though the final deal only affects loans taken out since July 1, the rate hike prompted widespread interest given the number of Americans with student-loan debt. Nearly one in five American households have student-loan debt, according to the Pew Research Center, and aggregate student-loan debt approaches $1 trillion, according to the Federal Reserve Bank of New York, making it second only to mortgages in the amount of consumer-held debt. Harkin has said he will address the overall issue of college affordability this year when his committee takes up reauthorization of the Higher Education Act.
Under the Senate-passed measure, federal student-loan interest rates would equal the rate on the 10-year Treasury note at the time the loan was taken out, with an additional percentage on top: 2.05 percent will be added to the rates of undergraduate Stafford student loans, with a 8.25 percent cap; 3.6 percent will be added to graduate loans, with a 9.5 percent cap; and 4.6 percent would be added to PLUS loans, with a 10.5 percent cap.
This article appears in the July 25, 2013, edition of NJ Daily.