The Senate and the Obama administration have reached an agreement to keep undergraduate interest rates low for current borrowers, although critics say it will not prevent students from paying higher rates in the future.
The latest compromise would reduce rates on new subsidized loans for undergraduates to 3.86 percent. That rate had doubled on July 1 to 6.8 percent after lawmakers were unable to agree to extend the old framework, in which Congress set interest rates.
The new agreement is the latest development in an interest rate saga that has lasted for several years. During this debate, many Democrats had continued to argue for Congress to set rates, while Republicans wanted to move to a market-based system. Many consumer and student groups liked the old system, arguing that interest rates are likely to rise soon and leave low-income students unable to handle the rate increase amid rising levels of debt.
Advocates for the compromise said the measure will help students and families.
The agreement is “a major victory” for college students, said U.S. Education Secretary Arne Duncan. “If enacted, the plan would cut rates on nearly every single new college loan this year offering relief to nearly 11 million borrowers.”
He said the typical undergraduate would save more than $1,500 in interest over the life of a loan. “Keeping student interest rates low is just part of our country’s commitment to placing a good education within reach for all who are willing to work for it.”
Sen. Tom Harkin, D-Iowa, chairman of the Senate’s education committee, also praised the agreement because it keeps rates low now and includes a provision that the undergraduate rate cannot exceed 8.25 percent, regardless of market rates. “This proposal includes the necessary caps on individual student loan interest rates to protect students should interest rates skyrocket in the future,” he said.
