Senate Approves College Student Loan Plan Tying Rates to Markets

WASHINGTON — The Senate on Wednesday approved a bipartisan plan that would tie interest rates for college student loans to the financial markets, bringing Congress close to finally resolving a dispute that caused rates to double on July 1.

But the 81-18 vote, which drew overwhelming support from Republicans, masked deep divisions among members of the Senate Democratic caucus. Seventeen of them voted “no.”

Many liberals, who are upset that the plan would replace the fixed-rate subsidized federal student loan program, criticized their colleagues for leaving lower- and middle-income students vulnerable to swings in the market.

As the bill was debated, a discordant scene played out as conservative Republicans like Richard M. Burr of North Carolina praised the Democrats they had worked with to strike a deal, and liberal senators like Elizabeth Warren, Democrat of Massachusetts, and Bernard Sanders, independent of Vermont, accused their colleagues of forcing through a bill that betrayed their party’s promises to working-class families.

“What I don’t understand,” Mr. Sanders said, “is when you have a Democratic president, a Democratically controlled U.S. Senate, why we are producing a bill which is basically a Republican bill?”

Noting that the government stood to bring in nearly $200 billion over the next 10 years because of the higher rates, Ms. Warren denounced the bill.

“This is obscene,” she said. “Students should not be used to generate profits for the government.”

House Republicans, who had approved a plan similar to the one the Senate passed, although with slightly higher loan rates, are expected to pass the Senate bill before Congress leaves for its summer recess next week.

Republicans did not even try to contain their delight that a plan they championed had passed over the objections of liberal senators. Speaker John A. Boehner’s office released a chart comparing the House bill with the Senate bill, noting wryly, “The final legislation is a permanent fix, and it protects taxpayers by not adding to the deficit — things that never would have come to pass if Senate Democrats had gotten their way.”

The Democrats defected despite arm-twisting from Senator Harry Reid of Nevada, the majority leader, and deep involvement from the White House, which supported a market-rate compromise.

The White House was pressing for a fix to rates on Stafford loans, which jumped to 6.8 percent from 3.4 percent on July 1 after Congress failed to come up with a plan to replace the rate structure that expired last summer. Congress had also failed to reach an agreement then and just extended the rates a year.

In that sense, the trouble over student loans was like so many other disputes on Capitol Hill today: self-inflicted and prolonged.

“Congress has trouble with deadlines. I think we all know that,” said Senator Joe Manchin III, Democrat of West Virginia, who helped broker the deal. “We’re here today trying to fix the problem we have with the government’s student loan programs because we kicked the can down the road last year.”

The Obama administration estimated that the fix would help 11 million borrowers who will take out loans this school year. The new rates would apply retroactively to people who had borrowed since July 1.

Under the new rate structure, loans to undergraduates, graduate students, and their parents under the PLUS program would be subject to a fixed rate tied to the 10-year Treasury note — specifically the yield on the 10-year note as determined by the last auction held before each June.

Rates for loans taken out after July 1 of this year would be 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 for those receiving PLUS loans. The rates would be fixed over the life of the loan.

In a compromise that pleased many Democrats who had initially been wary of using a rate that fluctuated with the markets, Congress set a cap on all loans: 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients.

Liberal critics said that while interest rates are low now, forecasters predict they will rise considerably.

Article source: http://www.nytimes.com/2013/07/25/us/politics/senate-approves-college-student-loan-plan-tying-rates-to-markets.html?partner=rss&emc=rss