Congress Fails to Reach Deal on Student Loan Interest Rates

Despite a lot of writing and advocacy work about interest rates on federally subsidized student loans, which will double on July 1 without congressional action, and despite proposals from both parties to solve the predicament, Congress hasn’t fixed the problem. The rates will double from 3.4 percent to 6.8 percent.

According to an article at Inside Higher Ed:

On Thursday, though, the clock ran out: the Senate’s failure to reach a deal to avert an interest rate hike for federally subsidized student loans means the rate will double Monday.

As the July 1 deadline approached, Congress remained deadlocked. The Obama administration and Congressional Republicans supported a long-term change to how interest rates are determined for all federal student loans. Those plans differed in the particulars, but both would have tied interest rates to market rates, allowing them to rise without a cap as interest rates go up in the broader economy. Congressional Democrats pushed for a one- or two-year extension of the current 3.4 percent interest rate for subsidized student loans, arguing that the issue should be settled when Congress debates broader higher education legislation in the coming years.

And so Congress will adjourn for its July 4 recess, without having fixed the problem.

This doesn’t mean, however, that college graduates with subsidized loans will actually pay more starting next month. As the article explains, the higher interest rate will apply only to new loans, issued this year. No one currently making payments will see a rate hike.

In addition, Iowa Senator Tom Harkin, the chairman of the Senate’s education committee, said yesterday that he would propose a one-year extension on the lower rate, which would apply retroactively. But whether he can make even that happen when Congress returns next week is unclear.

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer