Update: Senate reaches compromise on federal student loan interest rates

Senate negotiators reached a tentative deal this morning to address the student loan interest rate crisis. There now appears to be sufficient bipartisan support to pass legislation similar to a proposal by the Obama Administration that would tie interest rates on federally subsidized Stafford loans to 10-Year Treasury bonds plus 1.8 percent with a cap of 8.5 percent and 9.5 percent on undergraduate and graduate loan respectively. The federal loan program PLUS would pay the Treasury rate plus 4.5 percent. Roughly, this means individuals taking out new loans after the law passes will pay 3.61 percent for undergraduate loans and 5.21 percent for graduate loans.

Democratic leaders had been blocking a similar bill because of worries there was no caps on interest rates tied to federal loans that would protect students against sudden market spikes in interest rates. The measure was one President Obama insisted be part of legislation aimed at helping students. Sens. Joe Manchin (D-WV) and Angus King (I-ME) crafted the compromise after they voted against the Democratic bill for failing to address these worries, and with the support of Sen. Tom Carper (D-DE) garnished enough votes for the legislation to pass, pending a final analysis of the law’s deficit impact by the CBO.