The Senate passed bipartisan legislation Wednesday that will tie the student loan interest rate to the financial market in an effort to mend loan rates that doubled this month, despite division among Democrats.
“This compromise is a major victory for our nation’s students,” said President Barack Obama in a statement. “It meets the key principles I laid out from the start: it locks in low rates next year, and it doesn’t overcharge students to pay down the deficit.
“I urge the House to pass this bill so that I can sign it into law right away, and I hope both parties build on this progress by taking even more steps to bring down soaring costs and keep a good education – a cornerstone of what it means to be middle class – within reach for working families”.
On July 1, student rates doubled from 3.4 percent to 6.8 percent because Congress could not reach an agreement on how to handle the loan rates. Under the new legislation, federal student loans will be calculated and fixed to the interest rates on the 10-year Treasury bill and will allow all undergraduates this fall to borrow at a 3.85 percent interest rate, graduate students at 5.4 and parents at 6.4.
The House approved a similar Republican bill in June to tie loan rates to the financial markets; yet, liberal Democrats were afraid that this motion could allow rates to rise higher than the 6.8 percent rate set by Congress.
The final deal was agreed upon after Democrats won a protection for students in the bipartisan debates that set certain ceilings on the interest rates — 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for parents.
The deal only secures these rates through the 2015 academic year. With higher rates still looming in the near future, the deal has attracted a great deal of criticism.
“I think Congress is just pushing the problem back, which will create a domino effect for future students,” said nutrition junior Breanna Larsen, who has student loans. “Instead, interest rates on loans should have a steady increase in order to solve the deficit”.
According to Fox News, students with subsidized loans could easily be paying higher rates than the average person paying off a car loan.
“The U.S. loans to big banks at less than 1 percent interest, and here we turn around and demand profits on the back of our kids. That’s wrong,” Massachusetts Sen. Elizabeth Warren and UH Alumna told The Boston Globe. “We need to invest in our kids, not make it harder for them to get an education.”
The latest figures from the College Board show that the price at public four-year colleges is up 27 percent beyond overall inflation during the last five years. This past year alone it rose nearly 5 percent to an average of $8,655 nationwide.
On the same day the deal was first announced, the Consumer Financial Protection Bureau also estimated outstanding student debt at $1.2 trillion — up 20 percent in just two years. According to Fox News, student loans are now the largest form of consumer debt behind mortgages.
Some senators, such as Sen. Lamar Alexander, R-Tenn., the top Republican on education issues, believe the bill is beneficial.
Alexander told Politico it would save students in 11 million families billions of dollars and the deal was estimated to reduce the deficit by $715 million in the next decade.
Although an agreement has been reached to avoid a costly loan rate for students returning to campus this fall, Democratic Sen. Tom Harkin of Iowa, chairman of the Senate Health, Education, Labor and Pension committee, said he would revisit the deal this fall when his panel takes up a rewrite of the Higher Education Act, according to Fox News.
“Can we change it? Sure, we can change it,” Harkin said. “It’s not the Ten Commandments for God’s sake.”
Yet, Jorge Jerez, a recent UH graduate who is beginning to pay off his student loans, believes that students and senators are sitting in a gridlock for the moment.
“Politically they can’t accomplish anything more than that (deal),” Jerez said. “It will lower the rates for this year and the next, and hopefully by then we’ll have a Congress that is bold enough to side with the students. But I wouldn’t hold my breath.”
This story was updated at 10:20 p.m. on July 24, 2013.
news@thedailycougar.com