News Column

Deal Reached on Student Loan Rates

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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 jumped from 3.4 percent to 6.8 percent.

The deal provides only temporary relief. It would lead to 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," Majority Whip Dick Durbin, D-Ill., told reporters Thursday.

A floor vote is expected next week.

Under the compromise, rates would be tied to 10-year treasury bills, making them 3.86 percent this autumn for 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 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.

The proposal is similar to legislation that the House passed on a party-line vote in May. A key difference is that the Senate bill allows students to lock in rates at the time they borrow, while in the House version rates would fluctuate over the life of the loan.

House Speaker John Boehner, R-Ohio, seemed confident the differences could be worked out.

Both proposals are "market-based reforms with market-based rates," he noted during his weekly briefing with Capitol reporters. "When we see the details I'm hopeful that we'll be able to put this issue behind us."

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 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 over 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 over 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."

Compromise on student loan rates comes amid soaring student debt, which threatens to burden college graduates who are facing a bleak job market.

Outstanding student loan debt has soared to an estimated $1.2 trillion, a 20 percent increase since the end of 2011, according to Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.

That outpaces growth in revolving credit products -- mostly credit card debt -- tenfold, Mr. Chopra remarked Wednesday to the Center for American Progress, adding that student loan debt is second only to mortgages as the largest form of consumer debt.

The loan compromise is welcome news to Jeanette White of Hazelwood, a rising junior at Towson University in Baltimore who already has more than $30,000 in student loans.

"Gradual increases make it a lot easier to accept. Nobody wants the rate to increase, but I guess it has to to keep the economy stable," she said in a telephone interview Thursday.

Ms. White hopes the rest of Congress passes the Senate negotiators' deal quickly so she won't be stuck with a 6.8 percent interest rate on the loan disbursement she is expecting next month.

"It would make it a lot less stressful when I think about after college when I'm going to have to pay it back," she said.

Sen. Joe Manchin, D-W.Va., was among seven senators who negotiated the deal.

"We've come together to fix a long-term problem," Mr. Manchin said during a news conference.

Sen. Angus King, I-Maine, said the deal is a great solution for students.

"They benefit from interest rates when they are low and they are protected from high interest rates by the cap if interest rates go too high," he said during a news conference to announce the deal.

The American Council on Education, which represents 1,800 colleges and universities, endorsed the compromise.

Discussion about the cost of higher education continues to raise questions about whether a college education is worth years of debt.

Trey Miller, an economist for the Rand Corp. who specializes in higher education policy and finance, said investing in a college education is still a relatively safe bet in terms of long-term productivity.

But he cautioned that further research is needed to figure out if it makes sense for everyone to pursue a degree.

"It's unclear that higher education is always the best bet for every student."

And even though lower interest rates are good for students in the short term, Mr. Miller said it is unlikely to have much of an impact on the number of students who pursue a college degree.

"Students tend to not be particularly sensitive to student loan rates or even tuition -- they will continue to enroll in college and bear more of the costs in terms of student loans."

Washington Bureau Chief Tracie Mauriello: tmauriello@post-gazette.com, 1-703-996-9292 or on Twitter @pgPoliTweets. Alex Zimmerman: azimmerman@post-gazette.com, 412-263-3909 or on Twitter @AGZimmerman.

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