WASHINGTON (AP) — An emerging deal to lower interest rates
on student loans took shape Thursday, offering Democrats promises that
interest rates would not reach 10 percent and giving Republicans a link
between borrowing terms and the financial markets.
Lawmakers and their aides were in talks about how they might reduce rates
on subsidized Stafford loans, which doubled to 6.8 percent last week in
the wake of congressional inaction. Efforts to restore those rates to 3.4
percent were abandoned in favor of a new compromise that bears many
similarities with a bill that House Republicans have passed, and with
President Barack Obama's budget proposal.
"There is no question that there is a compromise available on this
important issue and that the sides have not been that far apart and we
just need to get it done," White House spokesman Jay Carney said.
"We have been working with lawmakers to make that compromise happen. We
need to make sure that students don't see their rates double," he said.
Under the plan lawmakers are considering, interest rates on new loans
would be based on the 10-year Treasury note plus an additional percentage
to pay for administrative costs.
Undergraduate students would see a better deal than the current 6.8
percent rate but could face higher costs if the economy improves and
Treasury notes become more expensive. Rates for students this fall would
be around 4 percent and would be capped at 8.25 percent in future years.
Graduate students and parents, too, could find better deals next year but
again would face higher rates than the current 7.9 percent. Borrowing for
those PLUS loans would be around 6 percent this fall and capped at 9.25
percent in coming years.
Lawmakers were still working on specific rates but both parties were in
rough agreement on the numbers. They were waiting for the Congressional
Budget Office to double check their math to make sure the proposal did not
cost taxpayers or generate too much profit.
Talk of a compromise came just hours after Democratic-led efforts to
restore the 3.4 percent interest rates failed to overcome a procedural
hurdle in the Senate. After several failures to find a stopgap measure,
Democrats abandoned that tactic and instead looked for a compromise.
Lawmakers met Wednesday in Democratic Sen. Dick Durbin's office to discuss
the next steps and that meeting suggested a compromise could be found.
Sen. Tom Harkin, the Democratic chairman of the Senate education panel,
took part in conversations Wednesday and Thursday on a potential deal he
previously called unacceptable. The main authors of that potential deal,
Democratic Sen. Joe Manchin of West Virginia and Republican Sen. Richard
Burr of North Carolina, said they were willing to tinker with some of the
details to make it more acceptable to Harkin and his Democratic allies.
Sen. Lamar Alexander, the top Republican on the Senate education panel,
also joined the talks.
"We must focus our attention now on a long-term solution such as the
president supports, the House of Representatives has passed and a group of
Republican, Democratic and independent senators have proposed," Alexander
A deal could be announced as early as Thursday, and a vote could be
scheduled as quickly as Tuesday.
If fresh negotiations prove fruitless, millions of students returning to
campus next month will find borrowing terms twice as high as when school
let out. Without congressional action in the coming weeks, the increase
could mean an extra $2,600 for an average student returning to campus this
fall, according to Congress' Joint Economic Committee.