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Student Loan Deal Emerges With Cap on Interest Rates
Posted at 2:13 p.m. on July 11, 2013
Updated 7:15 p.m. | The deal described below fell apart late Thursday after the Congressional Budget Office scared away the GOP. You can read about the latest here.
Pressure from the White House to solve the problem on federal student loans has pushed Senate Democrats toward a deal that many liberals will not like but which may attract enough Republican votes to overcome their opposition.
A bipartisan group of eight senators met late Wednesday in the Capitol office of Senate Majority Whip Richard J. Durbin, D-Ill., to hash out the details of a deal that looks similar in structure to a plan put forth by the White House in its 2014 budget and by Senate Republicans.
The emerging deal would peg student loan rates to market rates plus a certain number of points for each type of loan, multiple sources say. The difference between the plan sketched out Wednesday night and previous frameworks is that the newest iteration imposes a cap on how high interest rates can go: 8.25 percent for undergraduates and 9.25 percent for graduate students and PLUS loans.
A cap set at a rate that’s higher than doing nothing at all would draw serious concern from Democrats on the left. Such a framework has been rejected for weeks by the Senate Democratic caucus, but as a July 1 deadline to keep subsidized Stafford loan rates from doubling to 6.8 percent passes by, any deal might save face, even if it could ultimately create loan rates higher than current law. Under the talked about agreement, interest rates on new federal student loans would be pegged to the 10-year Treasury note, plus 1.8 percent for both the subsidized and unsubsidized Stafford loans, plus 3.4 percent for graduate loans and plus 4.5 percent for PLUS loans.
Such a framework would need at least 10 Republican votes to compensate for Democrats who might fall off, sources say.
Negotiators are waiting on a cost estimate from the Congressional Budget Office on their new plan. The CBO has created a weird math problem for lawmakers because under current law, the student loan program is projected to make $158 billion in profit over the next 10 years. Any reduction in profits off students would have to be offset with savings elsewhere.
It’s unlikely that Senate Democrats will spend much time on the new student loan construct in their Thursday policy lunch, which will be dominated by Majority Leader Harry Reid’s threat to change Senate filibuster rules.
Some sources tracking the student loan talks say there could be votes on the new plan next week.
UPDATE: Durbin presented briefly on the student loan issue at lunch Thursday, but with a score still outstanding, no final decisions have been made. As anticipated, much of the time in the caucus meeting was spent reviewing options for changes in Senate procedure.