The House Wednesday night overwhelmingly approved a deal on student loans that would immediately lower interest rates for students taking out loans this year, although critics warn that the bill might lead to a spike in rates in the future.
The bill, passed by a vote of 392-31, and was immediately sent to President Barack Obama, who is expected to sign it into law. This bill would finally provide some certainty for student borrowers who faced the possibility of paying higher interest rates were Congress not to act.
The compromise measure cancels the doubling of interest rates for subsidized Stafford student loans from 3.4 percent to 6.8 percent that went into effect on July 1 due to congressional inaction. Under this bill, the new interest rate for students taking out loans this year would be 3.86 percent.
The compromise is an amended version of the House’s original student loan bill, which passed May 23 only to stall in the Senate. The measure ties student-loan interest rates to the market, capping them at 8.25 percent for undergraduate students and 9.5 percent for graduate students.
House Speaker John Boehner, R-West Chester Twp., said that “we’ve taken an important step to help make life work for students and families trying to afford the cost of college. Going forward, the whims of Washington politicians won’t dictate student loan interest rates, meaning more certainty and more opportunities for students to take advantage of lower rates.’’
Unlike the original House bill, which allowed for the rates to fluctuate with the market, the Senate-amended version fixes interest rates for the life of the loan.
But critics of the measure, including Sen. Sherrod Brown, D-Ohio, who voted against the Senate bill, argued that while the compromise might lower interest rates now, there is no guarantee the interest rates would remain low in the future.
They have cited projections that show that interest rates could rise beyond 8 percent as early as 2017. The resulting bipartisan bill passed the Senate 81-18.
Ohio college students borrow on average $28,683 by the time they graduate — the seventh highest amount among states, according to the Project on Student Debt. Additionally, Ohio ranks ninth in the nation for the 68 percent of its graduates who use loans, according to the nonprofit.
‘A positive’ for families in need
More than 360,000 low- and moderate-income college students in Ohio use the subsidized loan.
The lower interest rate is “definitely a positive” for those students, said Sean Creighton, executive director of the Southwestern Ohio Council for Higher Education, a consortium of local colleges.
“Keeping it lower at this point definitely seems like it provides more opportunities for people who need it,” he said.
Cedarville University Financial Aid Director Kim Jenerette said he believes it is a good thing to have a basis for the interest rate, which previously was decided by Congress with “no true rhyme or reason.”
Undergraduates this fall would borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
But for now, interest payments for tuition, housing and books would be less expensive under the House-passed bill.
With changes made in the Senate — most notably a cap on how interest rates could climb and locking in interest rates for the life of each year’s loan — Democrats dropped their objections and joined Republicans in backing the bill.
Interest rates would not top 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.
The White House endorsed the deal over objections from consumer advocates that the proposal could cost future students.
“The bottom line is that students will pay more under this bill than if Congress did nothing, and low rates will soon give way to rates that are even higher than the 6.8 percent rate that Congress is trying to avoid,” said Chris Lindstrom, higher education program director for the consumer group US PIRG.
Despite contentious dialogue and partisan bickering, the compromise is a positive step to break some political gridlock in Congress.
“Changing the status quo is never easy, and returning student loan interest rates to the market is a longstanding goal Republicans have been working toward for years,” said Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce. “I applaud my colleagues on the other side of the aisle for finally recognizing this long-term, market-based proposal for what it is: a win for students and taxpayers.”
The top Democrat on that committee joined Kline on the House floor to urge colleagues to back the bill.
“It saves students and families money,” said Rep. George Miller, D-Calif.
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.
In all, some 18 million loans will be covered by the legislation, totaling about $106 billion this fall.
“Finally, we are taking action on the pressing issue of college affordability,” said Rep. Jared Polis, D-Colo. “We have to make sure our students are able to plan their futures.”
Lawmakers were already talking about changing the deal when they take up a rewrite of the Higher Education Act this fall. As a condition of his support, Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin won a Government Accountability Office report on the costs of colleges. That document was expected to guide an overhaul of the deal just negotiated.
“We will have the ability to come back and look,” said Rep. Sheila Jackson Lee, D-Texas.
The Congressional Budget Office estimated the bill would reduce the deficit by $715 million over the next decade. During that same time, federal loans would be a $1.4 trillion program.
The Associated Press contributed to the report.