WASHINGTON – A bipartisan group of senators has reached a deal to drag the student loan interest rates to a lower level – temporarily.
The two parties approached a compromise by linking interest rates to market rates and introducing a cap – 8.25 percent for undergraduate borrowers, 9.5 percent for graduate students and 10.5 percent for parents.
Given existing market rates, that means for students this fall taking out the federal Stafford loans – both subsidized and unsubsidized – the interest rates for undergraduate borrowers would be 3.85 percent. Graduates students would pay 5.4 percent and parents 6.4 percent.
“While this is not the agreement that any of us would have written, and many of us would like to have seen something quite different, I believe we have come a very long way on reaching common ground,” Senate Democratic Whip Dick Durbin said during a news conference Thursday.
The deal is expected to hold the rates at a lower level through the 2015 school year. After that, they might climb sharply.
“From my perspective as an advocate for students, it isn’t a particularly generous bill,” said Heather Jarvis, a North Carolina-based student loan expert.
“Over time the interest rates erratically rise and they may well be higher than they already are now.”
Jarvis said it’s difficult to know for sure what the total cost of interest would be for an individual student, “but it looks like it may be $3,000 to $4,000 over the life of the loan for a typical undergraduate.”
The deal, coming together earlier this week, emerged after congressional finger pointing regarding how to fix the doubling of the interest rates on the government-subsidized Stafford loans. The rates automatically doubled on July 1, after Congress failed to act to renew the loan law.
The hike affects approximately 7 million students, with an average borrower paying $2,600 more with the higher rate.
The Senate must now ratify the agreement by approving legislation that will make the rate structure retroactive, thus protecting students who already have sought loans for the fall term. Also, the agreement would need the approval of the U.S. House.