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Senate defeats Republican loan plans

Philip Elliott, Associated Press

WASHINGTON (AP) -- The Democratic-controlled Senate stopped a proposal that would link student loan interest rates with the financial markets but it was uncertain whether lawmakers could prevent interest rates from doubling on July 1.

The Senate took up competing proposals for new subsidized Stafford loans that, without congressional action, are set to see interest rates double from 3.4 percent to 6.8 percent. The chairmen and ranking members from both chambers' education committees were looking to pass measures quickly and then resolve differences later.

The Republican plan, which sought to peg interest rates to 10-year Treasury notes, fell short of the 60 votes needed to advance. It was not clear if Democrats had sufficient votes to cross the 60-vote threshold on their plan, which would extend current interest rates for two years.

The GOP plan would mean lower rates in coming years but those rates would rise as the economy improves. It is similar to a proposal in the president's budget, although both parties pointed to differences.

"If we can't agree on this, we can't agree on anything," said Sen. Lamar Alexander, the top Republican on the Senate education committee. "This is a manufactured crisis."

Lawmakers last year passed a one-year extension of the interest rates in the middle of the presidential campaign. But now, there seems a lack of consensus with little more than three weeks before interest rates increase. If nothing happens, students taking new subsidized Stafford loans would see an extra $1,000 cost for each year of maxed-out loans.

"On July 1, interest rates will double for the most vulnerable students in our society," said Sen. Jack Reed, D-R.I. "Republicans have a long-term proposal but they don't have a long-term solution."

The Republican-led House already has passed legislation that pegs interest rates to 10-year Treasury notes. The legislation would be a good deal for new students in the first few years but would spell higher rates — and costs — if the economy improves and interest rates increase.


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