On 25 July, the Senate approved a bipartisan plan to restructure the government’s education loan programme, tying interest rates for college student loans to the financial market and setting a cap on all loans.
The vote came after weeks of pressure from the White House to reverse the rise of college student loan rates which had doubled on 1 July (jumping from 3.4% to 6.8%) because of Congressional inaction.
The bill has now to be formally approved by the House of Representatives, which had already passed similar legislation, although with slightly higher loan rates. It will then replace the long-standing fixed-rate subsidized federal student loan programme before students return to campus this fall. The Obama administration estimates that 11 million students will benefit from lower rates for loans taken out after 1 July. The new rates, which would be locked in for the life of the loan, would be 3.9% for undergraduate students, 5.4% for graduates and 6.4% for PLUS loans (available to graduate students and parents of students).
The measure was approved by an 81-18 vote, to the general delight of the Republicans. But although supporters are touting the deal as a solution to a long-lasting problem, Democrats are deeply concerned. Even though the bill would initially lower interest rates for the coming school year, those rates would climb as soon as the economy improves, the government having to pay more to borrow money. Therefore, rates are very likely to climb and surpass the current rates within barely five years.
In a compromise, Democrats won a protection for students, ensuring that rates can never climb higher than 8.25% for undergraduate students (higher than the current rate of 6.8%), 9.5% for graduate students (more than the current rate of 6.8%) and 10.5% for PLUS loans (higher than the current rate of 7.9%).
Besides concerns about the volatility of the new rate-setting system, other doubts remain. The bill does not solve the USD 1 trillion student loan debt and it does not cut down the ever growing cost of college tuition.