Senate Agrees to Funding for Stafford Loan Extension

The Senate has reached an agreement on legislation to extend the subsidization of federal student loans in advance of the July 1 deadline. Despite Republican presidential nominee Romney and President Obama agreeing that the Stafford loan subsidies should be extended there has been long running disagreement between the two sides of the Senate regarding how to pay for it. The agreement in the Senate brings the matter nearly to a close for this year with only the House remaining to confirm the deal.

Preventing the current 3.4% rate for Stafford loans from doubling to 6.8% on July 1 is estimated to cost $6.7 billion. $1.2 billion of this will be provided by the imposition of a limit on the currently unlimited time period for receiving subsidized loans. If the agreement is signed students will only be able to receive them for up to 150% of the average time it takes to complete a degree. The rest of the money, $5.5 billion, will be funded from two pension changes. There will be higher premiums for companies participating in the Pension Benefit Guaranty Corporation and there will be a change to the way private pension interest payments are calculated.

“We’re pleased that the Senate has reached a deal to keep rates low and continue offering hard-working students a fair shot at affordable education,” said the White House press secretary, Jay Carney.

Senator Mitch McConnell, Republican of Kentucky, the minority leader, said the White House was not involved in reaching the compromise.

It is unclear currently what will happen in the House however. House Republicans had previously passed a loan extension paid for by a care fund from the health care law; although Senate Democrats blocked this. They are likely to want something in return for agreeing the Senate deal; Jonathan Weisman, writing in the New York Times, says:

House Republicans huddled with Speaker John A. Boehner of Ohio on Tuesday evening, trying to find a way to link the loan deal with a measure extending federal highway and transit programs. The goal, aides said, was to be able to take a final vote on Friday, ahead of the July 4 recess.

Of additional concern is that the Stafford loan extension deal agreed in the Senate only provides for one year. The entire issue will have to be revisited next summer. Although this is also welcome news for those who wish to see the subsidies end, as the supposedly short term measure was originally intended to do. Both parties have proven themselves unwilling to tackle a controversial issue during an election year.