With just a few days before student loan interest rates are set to double, party leaders in the Senate have reached a deal to keep the rate steady for 7.4 million students.
“We basically have the student loan issue worked out,” Senate Majority Leader Harry Reid (D-NV) told reporters on Tuesday.
The $6 billion agreement would be paid for primarily through savings from a change in how employer pension payments are calculated. Some savings will also come from tying the amount of time students can borrow at the low rate to the length of their degree program.
Congress must pass this legislation by July 1 to prevent the interest rates from doubling from 3.4 percent to 6.8 percent on federally subsidized Stafford loans. This would keep rates steady for 7.4 million students this fall, saving the average borrower $1,000 over the life of the loan.
The map below shows how students in your state benefit from keeping the Stafford interest rate steady.
Under the deal, a 25-year stabilization range would be created that could be used to reduce dramatic fluctuations in calculating companies’ pension contributions. When the two-year corporate bond rates that companies have previously used to determine their pension liabilities fall outside of this 25-year range, they can now be computed using the closest two-year rate within that timeframe. This will result in businesses taking fewer tax deductions for their contributions and is estimated to generate roughly $5 billion in tax revenue.
Additionally, employers will be required to pay an increased rate to insure their pensions through the Pension Benefit Guaranty Corporation, the federal government agency that oversees millions of employees’ pensions. The change is expected to generate $500 million.
The agreement also changes the amount of time students can borrow Stafford loans at the 3.4 percent interest rate, capping borrowing at 150 percent of the length of the degree program. For instance, a student earning a four-year bachelor’s degree would be eligible for subsidized Stafford loans for up to six years. Previous estimates have indicated this could save as much as $1.2 billion over the next decade, but specifics of this change have not yet been released.
This cap was originally included in President Barack Obama’s 2013 budget and was to be used to fill part of a $6 billion shortfall in Pell Grant funding for fiscal year 2014. As a result, Congress will need to find additional offsets to fill the Pell shortfall.
Path to victory
For months, both Democrats and Republicans supported keeping interest rates on student loans at the current 3.4 percent but disagreed on how to pay for it.
Both the Senate and the House of Representatives will likely vote on the student loan rate extension as part of the transportation-funding bill this week.
“We’re moving, I think, towards an agreement on a transportation bill that would also include a one-year fix on the student loan rate increase scheduled to go into effect July 1,” House Speaker John Boehner (R-OH) told reporters this morning.
The legislation must be passed by Congress and on President Obama’s desk by the weekend to meet the July 1 deadline.
“We’re pleased that the Senate has reached a deal to keep rates low and continue offering hard-working students a fair shot at an affordable education. Higher education has never been more important to getting a good job,” White House Press Secretary Jay Carney said in a statement. “We hope that Congress will complete the legislative process and send a bill to the President as soon as possible.”
The president has made keeping Stafford rates from doubling a core message of his work recently, traveling to college campuses around the country to discuss the issue and even inviting 150 young people to the White House last week, where he made a final push for Congress to act.
Support for higher education
Millions of Americans—college students, young Americans, and their allies—have spent the past few months calling on Congress to keep higher education affordable. Hundreds met in person with their senators and staff, asking them to prioritize students, and thousands more turned to social media outlets, online petitions, and phone banks to make sure Congress heard their voices.
On the whole, Americans strongly support making student loans more affordable and increasing available financial aid. According to a recent report by Campus Progress and Young Invincibles, an overwhelming 88 percent of Americans ages 18–34 said affordable higher education helps make our economy stronger. (see table)
Anne Johnson, the Director of Campus Progress, the youth outreach arm of the Center for American Progress and a leading voice in the fight to keep Stafford rates steady, applauded Senate leadership for reaching the deal.
“We know that higher education is a proven pathway to success and keeping it affordable and accessible for every interested American is crucial to strengthening the middle class and cultivating long-term economic growth,” Johnson said. “When Congress passes this legislation, millions of students will be able to return to school knowing that they will not face higher interest rates.”
Brian Stewart is the Journalism and Online Communications Manager, Tobin Van Ostern is the Advocacy and Communications Manager, and Abraham White is the Communications Associate for Campus Progress.