Students applying for new federally subsidized student loans will see the interest rate double from 3.4 percent to 6.8 percent Monday, after Congress failed to pass legislation preventing the automatic hike.
The Senate spent the month of June floating a range of bills to address the problem. The most recent was introduced June 27 by Sens. Lamar Alexander (R-TN), Joe Manchin (D-WV), Richard Burr (R-NC), Angus King (I-Maine) and Tom Coburn (R-OK). Their legislation draws on concepts introduced by Republicans and the White House, including tying interest rates to the financial markets. It’s also similar to the measure (H.R. 1911) the House approved in May, which would base interest rates on the 10-year Treasury note and allow the rates to fluctuate. Unlike the House bill, the Senate measure would not cap rates—one of several differences between the two proposals.
The Senate bill also would differentiate between undergraduate and graduate Stafford loans for the first time in the history of the program, with graduate students paying a higher interest rate (approximately 5.21 percent for graduate students in the first year, compared to 3.66 percent for undergraduates).
Democratic leadership in the Senate continues to favor a short-term extension of the current rate, so this latest bill was not brought up for a vote this week. Two earlier bills (S. 1003 and S. 953) failed to clear the 60-vote hurdle required to cut off debate and move forward to a final vote.
Senate Majority Leader Harry Reid (D-NV) and Sen. Tom Harkin (D-IA) have raised the possibility of holding a vote after the July 4th recess to retroactively adjust the rates if a compromise can be reached. The soonest this could happen is the week of July 8.
No Deal on Loans
Inside Higher Ed (June 28, 2013)
Higher Student-Loan Interest Rates Could Have Political Costs
The Chronicle of Higher Education (June 28, 2013)
Lawmakers Fail to Reach Student Loan Deal Before July 4 Break
Fox News (June 27, 2013)