It appears that a bipartisan proposal to the looming federal student loan rate increase is now working its way through the Senate. This situation has come way too close to the old saying of “Better Late Than Never”. Hopefully this new bill will clear the Senate with a House version fast tracked as well and then get signed by the President before the July First deadline to provide some much needed student loan relief.
The news working its way out of Washington now is that this bill will set this year’s rates for subsidized Stafford Loans at 3.8 percent. This is a slight increase of 0.4 percent, but nowhere near the project rate of 6.8 percent if nothing is done at all. The rates for unsubsidized loans would also be set at 3.8 percent. As the bill is currently written, future interest rates would be tied to the financial markets. However, once the loan is issued, the rate will remain stable for that student over the life of the loan.
This current legislation was drafted by three Senators; Joe Manchin (D-WV), Tom Coburn (R-OK) and Angus King (I-ME). The compromise was hinted at by the Senate majority leader, Harry Reid (D-NV) earlier this week when he had to field questions about the next step after bills put forth by both parties, the House of Representatives bill and the President’s 2012 Budget proposal were all rejected for discussion. While it hasn’t fixed the problem yet; this bill appears to be a vast improvement over the last year of political football played by both parties in Congress and the White House.
The new bill also has early, tacit approval from the White House. Presidential economic advisor Gene Sperling and Education Secretary Arne Duncan are expected to meet with the sponsoring Senators this week. It should also be noted that Senators Elizabeth Warren (D-MA) and Jack Reed (D-RI) have been mentioned by Harry Reid in conjunction with this bill and could also be involved in the discussion to give students and parents some needed student loan relief on their loans. White House involvement at this point also gives hope that Congress is serious about the effort and will not pass default legislation to simply extend the current rates as they did last year.
Previous Senate bills had support strictly along party lines and the only thing both Republicans and Democrats agreed upon was that they would not support any version of the legislation passed by the House of Representatives. Ironically, it is this bill from last month that pushed both parties into finally working together.
With a House solution on the table, the Senate had to take this issue off the back-burner and treat it with all due speed and effort or face being labeled as the group that added financial hardship to already struggling families. The Speaker of the House, John Boehner (R-OH) increased the pressure earlier this month when he told reporters that “It’s not fair to students across the country who need to know what the cost of their loans is going to be and what the interest rate is going to be.”
This bipartisan bill reportedly has adopted one thing common from the White House Budget and the House and Senate Republican’s bills; interest rates will be pegged to the 10 Year Treasury Note plus a small additional percentage. Unlike the House bill, but in common with the White House and the Senate Republican suggestions, this rate will be locked in over the lifetime of the loan. If it passes, this is a significant compromise from Senate Democrats who had previously opposed even the President’s version.
One other item adapted from the House bill is that after graduation or completion of their studies, students would still be able to consolidate multiple loans or ask for financial assistance on a single loan. The cap on federal student loan interest rates would remain at its current level of 8.25 percent.
With only ten days to go before current interest rates are doubled, Student Debt Relief is dedicated to keeping you informed on the latest updates and changes coming out of Washington. Check back here daily to stay on top of this and other changes to the federal student loan program that can affect your family’s educational and financial future.