Senators Scramble to Prevent Doubling of Student-Loan Rates

Elahe Izadi
National Journal

As the clock ticks down toward the doubling of some student-loan interest rates, a group of senators has been scrambling to come to an agreement to solve the problem.

A handful of lawmakers from both sides of the aisle have been in negotiations this week to find a long-term solution, rather than locking in the current rate for another two years, as has been previously proposed by Senate Democrats. Rates on new subsidized Stafford student loans are set to double from 3.4 to 6.8 percent on July 1.

Senate Majority Leader Harry Reid said Tuesday that there’s been a flurry of activity on the issue over the past 24 hours, as he has spent “lots of time” with Democratic senators involved in the compromise. “All are working really hard to try and come up with something that’s good for the kids, young men and women who want to be educated,” Reid said. “We’re not there yet.”

Education Secretary Arne Duncan and National Economic Council Director Gene Sperling will meet with Democratic senators on Thursday, Reid said.

Republican Sens. Lamar Alexander of Tennessee, Richard Burr of North Carolina, and Tom Coburn of Oklahoma have been in negotiations, along with Sens. Joe Manchin, D-W.Va., Jack Reed, D-R.I., and Angus King, I-Maine. The senators are working on the common philosophical ground of tying the rates to the market.

The House passed a long-term fix that would tie the interest rates on such loans to the 10-year Treasury note, plus 2.5 percent, and allow the rates to fluctuate but cap them at 8.5 percent. While President Obama threatened to veto the bill and backed the Senate Democratic plan to extend current rates for two years, his proposed budget plan also ties subsidized-loan interest rates to the 10-year Treasury note rate at the time of the loan.

There are differences, though: Obama’s approach would add 0.9 percent, rather than 2.5 percent, and would fix the rates, rather than allow them to change each year. Alexander told National Journal Daily on Tuesday morning that “we’re pretty close,” and the goal is to reach a deal by the end of the week. W

While three or four areas of disagreement had been identified, senators were aiming to lower the rates on all new loans to less than 5 percent and tying the interest rates to the market. Alexander was in favor of locking in the rates rather than allowing them to fluctuate, as occurs in the House Republican plan.

While lawmakers sounded optimistic Tuesday, Senate Majority Whip Dick Durbin, D-Ill., said there was resistance in his caucus to having variable, market-based rates, though he’d go along if rates were capped. “We’d like to see a cap on the interest rates so that the students have some certainty as to their future debt,” he said.

It's also notable that Reed is involved with the negotiations; he co-sponsored the proposal to extend the rates for two years, along with Democratic Sen. Tom Harkin who has publicly slammed Obama's proposal for tying the rates to the 10-year Treasury note.

Other sticking points are what to do with any possible savings in reforming the program (Democrats have called for such money to be redirected to programs such as Pell grants).

But as the clock ticks down, it doesn't appear another alternative is in sight. House Republicans have accused Democrats of playing politics with the issue rather than passing a bill in the Senate. Coburn, who sounded hopeful about reaching a compromise, added, "I won't allow unanimous consent for a short-term extension" if an agreement wasn't reached by month's end.

And even if some sort of compromise is worked out, such a proposal could garner only 60 votes, rather than enough support for unanimous consent.

When a reporter asked if such an outcome could result in Senate business getting "knotted up," given immigration reform is still in play, Reid responded: "I live in a world of knots. So, we'll just have to see what nuclear Boy Scout tie it is."