WASHINGTON — Relief could be on the way for borrowers stunned by student-loan rates that abruptly doubled this month.
A bipartisan group of senators has reached a deal with the White House to bring down student-loan rates that abruptly jumped from 3.4 percent to 6.8 percent.
The deal provides only temporary relief. It would lead to much higher rates as the economy improves.
“While this isn’t the agreement any of us would have written — and many of us would like to see something quite different — I believe we have come a long way in reaching common ground on a very, very difficult and challenging topic,” Minority Whip Dick Durbin (D., Ill.) told reporters on Thursday.
A floor vote is expected next week.
Under the compromise, rates would be tied to 10-year U.S. Treasury bills, making them 3.86 percent this autumn for both subsidized and unsubsidized undergraduate loans. The rate would be in effect for the life of the loan.
Parents borrowing money for dependent children’s tuition would pay 6.41 percent for loans taken out this fall. The current rate is 7.9 percent.
For most graduate students, who currently borrow at 6.8 percent, rates would drop to 5.41 percent.
Future borrowers, though, would end up paying much more as treasury bill rates rise.
Congressional aides estimate that rates could reach 7.25 percent for undergraduate students, 8.8 percent for graduate students, and 9.8 percent for parents within five years.
Lawmakers negotiated caps to prevent those rates from increasing beyond 8.25 percent for undergraduates, 9.5 percent for graduate students, and 10.5 percent for parents.
In announcing the agreement, negotiators praised each other for bipartisanship and flexibility, but in a floor speech later other senators decried the proposal.
Sen. Elizabeth Warren (D., Mass.) said that she can’t support the legislation because it increases the government’s profit on interest rates.
The government is on target to reap $814 billion in student-loan interest during the next decade, according to the Congressional Budget Office. The compromise would add about $715 million to that.
“That comes directly off the backs of our students,” Ms. Warren said. “We need to take steps now to lower the profit we make off the backs of our kids.”
Sen. Bernie Sanders (D., Vt.) had similar concerns.
“You’re making a profit off low and moderate-income people who want to send their kids to college. I can think of better ways to make money to help with the deficit than to force low and moderate-income parents and students to pay more than they should be paying,” he said.
Mr. Durbin said he doesn’t want the government to profit from students either, but $715 million is “a tiny fraction of decimal dust” in the context of $1.4 trillion in loans that will be disbursed during the next 10 years.
“Doing nothing will mean students and their families will pay 6.8 percent for their loans for the foreseeable future,” he said. “Walking away from this bipartisan approach is going to mean more debt for students, higher interest rates. I don’t think that’s fair.”
The American Council on Education, which represents 1,800 colleges and universities, endorsed the compromise.
The Block News Alliance consists of The Blade and the Pittsburgh Post-Gazette. Tracie Mauriello and Alex Zimmerman are reporters for the Post-Gazette.
Contact Tracie Mauriello at: email@example.com or 1-703-996-9292.