In a 392-31 vote, the US House of Representatives has approved a bipartisan bill that would reverse the spike in interest rates for federal student loans. The new measure, which will now go to President Barack Obama for his signature, will link interest rates to the cost the federal government pays to borrow money. This will work to reduce the rates at present, but will allow them to rise if economic conditions in the country improve.
Speaker John Boehner said that the change will keep student loans from becoming hostage to political machinations in the future.
The law will set the interest rates at 3.9% for undergraduate loans originating this fall, 5.4% for graduate loans and 6.4% for loans taken out by parents. The rates would only be guaranteed for one year and as the price of borrowing money goes up for the government, so will the price for the federal student loans.
But for now, interest payments for tuition, housing and books would be less expensive under the House-passed bill.
ââChanging the status quo is never easy, and returning student loan interest rates to the market is a longstanding goal Republicans have been working toward for years,'' said Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce. ââI applaud my colleagues on the other side of the aisle for finally recognizing this long-term, market-based proposal for what it is: a win for students and taxpayers.''
According to Philip Elliott of the Associated Press, the debate over the compromise was shaped by the stated preference of the Obama administration that student loan rates be tied to a financial instrument like Treasury Bills. Further, Obama has said in the past that he would like to see Congress relieved of the responsibility of setting the rates on an annual basis.
The version that will go to President Obama's desk was passed by the Senate with a vote of 81-18. Among the provisions requested by Democrats in exchange for their support was a cap on interest rates as well as a guarantee that locked in the stated rate for at least a year.
The limit adopted for undergraduate loans is 8.25% per year. Estimates published by the Congressional Budget Office project that the loans won't hit these limits for at least a decade.
The White House endorsed the deal over objections from consumer advocates that the proposal could cost future students.
ââThe bottom line is that students will pay more under this bill than if Congress did nothing, and low rates will soon give way to rates that are even higher than the 6.8 percent rate that Congress is trying to avoid,'' said Chris Lindstrom, higher education program director for the consumer group US PIRG.