Senate set to finish work on student loan deal

WASHINGTON (AP) -- Borrowing for tuition, housing and books would be less expensive for college students and their parents this fall but the costs would start climbing almost immediately under a deal the Senate was poised to pass Wednesday.

The bipartisan proposal lawmakers were considering would link interest rates on federal student loans to the financial markets, providing lower interest rates right away but higher ones if the economy improves as expected. Lawmakers had begun considering last-minute changes that were unlikely to be included and seemed to be on track to pass the full bill by early evening.

Under the bipartisan deal, undergraduates this fall could borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents could borrow at 6.4 percent. Those rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.

Rates on subsidized Stafford loans doubled to 6.8 percent July 1 because Congress could not agree on a way to keep them at 3.4 percent. Without congressional action, rates would stay at 6.8 percent.

The compromise that came together during the last few weeks could be a good deal for students through the 2015 academic year. After that, interest rates are expected to climb above where they were when students left campus in the spring, if congressional estimates prove correct.

"That's the same thing credit card companies said when they sold zero-interest rate credit cards. ... The bill comes due," said Sen. Elizabeth Warren, D-Mass. "All students will end up paying far higher interest rates on their loans than they do now."

Warren was among the liberal Democrats who labeled the White House-backed proposal a bait-and-switch measure that would lure in new borrowers with low rates now but would cost future students. Throughout the morning and afternoon, they stood to oppose the compromise.

"The bill before us today offers students and families lower student loan interest rates in the near-term but we can fully expect higher student loan interest rates in the years to come," said Sen. Tammy Baldwin, D-Wis. "Why on earth would we want to expose our students to higher rates?"

Added Sen. Barbara Boxer, D-Calif.: "Don't kid yourself. ... This so-called deal makes it worse."

The White House's allies instead suggested the new formula is better than the status quo.

"Don't let anyone tell you that this is bad deal for students. This is not a bad deal for students. If we don't pass this, students will pay 6.8 percent on their loans. With this bill, they'll pay 3.86 percent. You tell me which is the better deal," said Sen. Tom Harkin, the Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee.

Harkin said the legislation is not what he would have written if he had the final say but he also said that he recognizes the need to restore the lower rates on students before they return to campus for classes.

"It's the best that we can do," Harkin said on the Senate floor. "If we don't pass this today, there will be one sure effect: student loans will be almost twice what they would be under this bill."

The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges. Democratic leaders expected widespread defections from within their ranks but expected Republican support would help them win passage.

But there was no denying the new structure could cost future students if the economy improves as expected and interest rates climb.

"I suspect they will. They're pretty low right now," said Sen. Tom Carper, D-Del. "Who knows? We don't know."

As part of the compromise, Democrats won a protection for students by capping rates at a maximum 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents' rates would top out at 10.5 percent.

Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.

Most Senate Republicans who pushed for interest rates to be linked to the financial markets were likely to vote for the measure. It was negotiated by Democratic Sen. Joe Manchin of West Virginia and GOP Sens. Richard Burr of North Carolina and Lamar Alexander of Tennessee, the top Republican on the Senate Health, Education, Labor and Pensions Committee. Sen. Angus King, an independent from Maine, also joined the talks and the lobbying effort for the deal's approval.

"You want to help the middle class? This is where the middle class is," Manchin told his colleagues. "We all came here to help our constituents."

A bit later, Burr asked his colleagues: "What's best for students? I think you'll find it is this bipartisan bill."

The compromise negotiated in the Senate closely hews to what House Republicans passed this year, and that was a sticking point for some liberals.

Sen. Jack Reed, D-R.I., pushed for an extension of the current 3.4 percent rate so lawmakers could address the subject this fall during the revision of the Higher Education Act.

"At some point, it's going to be a much worse deal," Reed said. "It goes up and up and up and up."

The Congressional Budget Office estimated the bill as written would reduce the deficit by $715 million over the next decade. During that same time, federal loans would be a $1.4 trillion program.

"We've got to get out of the business of making profits of struggling families who want nothing more than to be able to send their kids to college," said Sen. Bernie Sanders, a Vermont independent who caucuses with Democrats. "This legislation only makes a bad situation worse."

___

Follow Philip Elliott on Twitter at http://www.twitter.com/philip_elliott