Democrats’ push to retroactively reverse an interest-rate hike on some student loans failed in a procedural vote in the Senate on Wednesday, but a group of lawmakers and Senate leadership may soon hammer out a deal.
Both Republicans and Democrats have agreed that any proposal shouldn’t reduce the federal deficit, and both sides appear open to tying rates to the market. A major sticking point for the majority of Democrats is to cap interest rates on individual loans.
On July 1, interest rates on new subsidized Stafford loans doubled from 3.4 percent to 6.8 percent. A proposal released in late June by a bipartisan group of three Republican Senators and Sens. Joe Manchin, D-W.Va., and Angus King, I-Maine, lacked a cap on individual loans; it tied interest rates to the 10-year Treasury note, with a percentage on top, and capped consolidated loans. Now, senators are awaiting Congressional Budget Office scoring on alternate versions.
“I believe we’re close to a solution that will drive down the rates substantially,” King said. “If interest rates come up, the interest rates of the students will come up, and that’s why the search now is for some kind of cap or protection on the upside.”
Senators met Wednesday night and reached a bipartisan agreement based on the Manchin-King proposal to include a front-end cap of 8.25 percent on undergraduate and 9.25 percent on graduate loans, and to set the same interest rate for both subsidized and unsubsidized loans, according to an aide familiar with the negotiations.
The Wednesday procedural vote on a Democratic proposal to revert back to the 3.4-percent rate for a year failed on a 51-49 vote, short of the filibuster-proof 60. That bill would have paid for the rate reduction by closing an IRA tax loophole. Sen. Tom Harkin, D-Iowa, argued the freeze would have given senators time to tackle interest rates in the broader context of college affordability during the reauthorization of the Higher Education Act.
Meanwhile, Senate leadership met with top Obama administration officials Tuesday night. Republicans and Democrats convened in Majority Whip Dick Durbin’s office Wednesday morning for more talks, which Senate Majority Leader Harry Reid said “went very well.”
“There is progress being made,” Reid said. “Maybe we can come up with a compromise. Although it would be imperfect, as a lot of things that happen legislatively, it will be a way for us to move forward.”
Some senators, including Harkin, have said they are open to tying the rates to the 10-year Treasury note, an idea they opposed in the past. But Republicans will also have to be sold on the idea of capping individual loans. Harkin said in a statement that any plan tying rates to the market without a cap will not pass the Senate. “I firmly believe that we should not rush to put into place a plan that we have not fully examined, but remain willing to continue negotiating towards a solution,” he said.
Meanwhile, pressure builds for a resolution before August recess, as students will soon be taking out new loans and starting the fall semester. As one Democratic aide put it, “The White House would just like to come to a deal and have this finished.”