With less than two weeks before subsidized student-loan interest rates double, Senate Democrats are finding common ground on a compromise involving capping rates while also tying them to the market.
Democrats previously opposed to tying interest rates to the 10-year Treasury note warmed to the idea after indications from the White House that they favor capping rates. The development came as House Republican leadership has been using the issue to beat up on Democrats—a reversal of last year, when Democrats held the political upper hand and criticized Republicans for not moving on a plan as rates were about to double.
Rates on new unsubsidized Stafford loans will double from 3.4 to 6.8 percent on July 1, pending action from Congress. Senate Democrats failed earlier this month in efforts to extend the current rate for two years, while the House has passed a bill that ties the rates to the 10-year Treasury note, plus 2.5 percent on top. President Obama threatened to veto the House bill, but his budget plan also links the rates to the 10-year note with 0.9 percent on top for subsidized loans—a point Republicans are keen to point out in their criticism of Senate Democrats.
On the same day that House Speaker John Boehner sent a letter to Obama and said "the president has failed to talk about this issue and he hasn't lifted a finger to push his own party to pass his own proposal," White House Chief of Staff Denis McDonough spoke to Senate Democrats about how to avert rates doubling. (Education Secretary Arne Duncan was originally supposed to make the Thursday Hill visit.)
Sen. Tom Harkin, D-Iowa, whose bill to extend the current rates for two years failed to pass the Senate, said Thursday that capping the rates would be nonnegotiable. He had previously criticized Obama for his budget plan that links student-loan rates to the 10-year Treasury note.
"I would prefer to stay with the 90-day [Treasury] bill rate, but if the consensus is we've got to go to 10 years, then there are other ways we can save students money on the interest rates," Harkin said. "There may be some trade-off that will still be better than letting the rates double."
As for the notion that there's been no movement in the Senate, Democratic Sen. Joe Manchin of West Virginia, who has been involved in talks with a group of Republican and Democratic senators, said, "I would assume that the speaker would need to be talking to some of the Senate Republicans who've been working" on the issue. Some of those involved in bipartisan talks, such as Sen. Angus King, I-Maine, said Thursday that they hoped to reach an agreement within the next 24 hours. "It's important to get [the White House's] point of view, to see what they think the proper solution should be," King said. "They have a proposal in the budget that I don't agree with entirely, but I do think it's a good step forward."
Aside from the need to cap the rates, Senate Majority Whip Dick Durbin, D-Ill., identified other sticking points for Democrats, including how long the rates would last and whether the resulting plan would generate a surplus. Some Democrats have proposed funneling any surplus into programs such as Pell grants, while the House bill directs the surplus back to Treasury.
But it's a tall order to get a long-term fix for the student-loan rate—something that eluded Congress last year—within just 10 days, especially with major immigration legislation still pending. Heading into the legislative lunch where McDonough spoke Thursday, Senate Majority Leader Harry Reid told National Journal Daily, "I hope we can have a couple of proposals to vote on" by July 1.
Otherwise, Republicans can continue to use the issue to criticize Democrats. When asked about that prospect, Durbin responded that "what the House passed is certainly very little of an improvement over doubling the rates. Over the long haul, the Republican approach is going to be even more expensive for students."
This article appears in the June 21, 2013, edition of NJ Daily.