Update: The Democrat sponsored plan to restore interest rates to their pre-July 1 rate of 3.4% failed to move towards a vote in the Senate on a 51-49 vote. Advocates of the proposal needed 60 votes to break the filibuster, which failed largely along party lines. This means the new rates of 6.8% will apply to all new borrowers, as well as any students who have borrowed money for a summer semester tuition. Congressmen say that negotiations continue.
Senator Debbie Stabenow (D-Mich.) has signed on as a co-sponsor--there are now 42--of the Keep Student Loans Affordable Act, S. 1238, introduced by Senators Jack Reed (D-R.I.) and Kay Hagan (D-N.C.), which would extend the 3.4% interest rate for need-based student loans for one year, paying for it by ending a tax break on tax-deferred retirement accounts.
"It is absolutely critical that Congress come together and pass this legislation to reverse this rate hike," she said, "and begin work on a long-term plan to make college more affordable for every student."
But the outlook has not improved since Congress returned from the Fourth of July break. With 60 votes needed for passage and 53 senators on the Democratic side of the aisle, at least five Republicans votes will be needed, even if every Democrat voted for Reed-Hagan along with the two independents, Bernie Sanders of Vermont and Angus King of Maine. And King has supported a competing Republican bill, Burr-Coburn-Manchin-King, which would make permanent changes to how interest rates are calculated, tying them to market rates.
A disadvantage of the Reed-Hagen bill over others is that it would expire four months before an off-year election, once again turning student loan rates into a campaign issue. Any student loan bill up for a vote in the current session may get sucked into a perfect storm--the House maelstrom that could kill an immigration bill and has already killed a farm bill, which House Republicans voted down despite the entreaties of speaker John Boehner (R-Ohio).
The back story includes a likely attempt by Iowa's Democratic Senator Tom Harken to reauthorize the 1965 Higher Education Act, probably by the end of the year. A one-year rate freeze will buy time to work on a more permanent solution. A senate source said Harken was not opposed to synching student loan rates to market rates, which have nowhere to go but up. "8.25 % has historically been the cap," the source said.
For student loan bag holders, the dollar amount you'll pay may depend a lot on where you live, irrespective of rates. The Center for American Progress, a Washington, D.C.-based think tank, released a report last month that breaks out the average cost per borrower at the state level. California, where about 550,000 people have Stafford Loans and the unemployment rate among youth, a group defined as 18-to-24 by the Bureau of Labor Statistics, is 20.2%; the average Stafford loan borrower would save $987 per year if rates held at 3.4%
In New York, where unemployment in the 18-24 age group is 18.1%, the average annual savings among 409,000 Stafford loan borrowers would be $937.
Any bill that passes in the Senate will need to pass House, whether it's S-1238 in its current form or a compromise hammered out between both houses of Congress. A freeze at 3.4% could still be made retroactive to July 1, the date of the increase to 6.8% But by then, the summer recess could be just over two weeks away.
"We've made Stafford loan rates a priority but have a lot of things to do before we leave town in August," the senate source said, who also made no promises for a deal. Between the summer recess and the fall, the source added, "students will start taking out loans" with increased rates.
--Written by John Sandman for MainStreet