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Senate Negotiates on Loans as Clock Ticks Senate Negotiates on Loans as Clock Ticks

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Senate Negotiates on Loans as Clock Ticks

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Sen. Lamar Alexander says he's been keeping Republicans in the loop on student-loan deal negotiations.(AP Photo/J. Scott Applewhite)

While senators negotiating over student-loan interest rates have agreed on a broad framework to turn back recent increases, a final deal remains elusive.

By late last week, lawmakers had broken the gridlock, agreeing to work toward a deal that would be deficit-neutral, tie interest rates to the market, and place rate caps on individual loans. But senators have yet to settle several important details, such as whether or not to charge the same rate for all undergraduate loans and what those rates would be.

 

The deal-making has been complicated by the climate in the Senate, where Republicans and Democrats are warring over President Obama's nominees and a Democratic threat to change filibuster rules in order to get them through. The so-called "nuclear option" is likely to dominate the action in the Senate on Monday and Tuesday.

"Staff continue to negotiate, but senators on both sides are mostly focused on Tuesday" and the nuclear option, said a Republican Senate aide. "I can only see the student-loan issue being resolved by August if cooler heads prevail."

Interest rates on new subsidized Stafford loans doubled July 1 from 3.4 percent to 6.8 percent, and Democrats failed last week in their push for a one-year rate freeze. Now, the pressure will increase on the Senate to retroactively to turn back the rate hike as the clock ticks toward August recess, and students begin taking out loans and starting the fall semester.

 

"The White House wants it done, [Democratic] leaders at this point want this done—the politics didn't work out they way they wanted," said a Senate aide familiar with negotiations.

The lawmakers now involved in negotiations include Sens. Lamar Alexander, R-Tenn., Richard Burr, R-N.C., Tom Coburn, R-Okla., Tom Harkin, D-Iowa, Angus King, I-Maine, Joe Manchin, D-W.Va., and Jack Reed, D-R.I., and Majority Whip Dick Durbin, D-Ill.

The group submitted a number of proposals to the Congressional Budget Office for scoring. One such plan—which would lump together all undergraduate loans with a front-end cap of 8.25 percent and all graduate loans with a 9.25 percent cap—was estimated to cost the federal government $22 billion over 10 years. That has triggered another round of plans for scoring, according to the Senate aide familiar with the talks. "No one is walking from the table," the aide said.

Another proposal floated by the White House had loans capped at lower than 8.25 percent, but it set different rates for subsidized and unsubsidized loans, rather than lumping them together. That plan came back deficit-neutral, according to a Senate aide.

 

The House passed its own plan in May, which ties rates to the 10-year Treasury note with a percentage on top, but it lacked a cap on individual loans and faced a veto threat.

Tying rates to the 10-year Treasury note, an element also found in the White House's budget plan, was once a point of contention between Republicans and Democrats.

In late June, Alexander, Burr, Coburn, King, and Manchin pitched a plan tying rates for subsidized and unsubsidized Stafford loans to the 10-year Treasury note, currently 1.81 percent, plus 1.85 percent on top. But it lacked a cap on individual loans and CBO estimated it would cut $1 billion from the federal deficit—both deal-breakers for Democrats. The group eventually caved on caps and leading Democrats agreed to tying rates to the market. As it became clear the Democratic vote to freeze the 3.4 percent rate would fail, another round of talks began with an expanded circle.

Given who's at the table now, it appears that there is fertile ground for a deal before August recess. But a Democratic Senate aide cautioned that "only eight guys are having this conversation. It's not as if the caucuses are being brought in to see if there's broader support for this."

Alexander said Thursday that he's been keeping Republicans in the loop. "They seem generally comfortable. I don't have their commitments to vote for it yet, but we know we won't get everything we want, and as long as the Democrats understand that too, we'll probably have a pretty good result."

Subsidized Stafford loans will account for a little more than a quarter of the money in new federal loans this year, according to CBO. Another 56 percent will be unsubsidized Stafford loans and the remainder will be graduate and PLUS loans. The neediest students qualify for subsidized Stafford loans, although many students take on a mix of debt.

In the 2007-2008 school year, 47 percent of all undergraduates received some kind of federal financial aid, averaging $6,600, according to the National Center for Education Statistics.

The focus on student-loan interest rates, prompted by the automatic hike on some loans, is just one piece of an urgent, larger policy debate, argues Jim Kessler, senior vice president for policy at centrist-Democratic think tank Third Way.

"We're chasing higher, constantly increasing tuition costs. That's the big education finance problem in America right now," Kessler said. "The cost of college tuition has increased faster than inflation for 33 years…. There's a point where we have to ask ourselves, 'Are we subsidizing tuition increases or are we really making college more affordable for people?' "

This article appears in the July 15, 2013 edition of NJ Daily.

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