After months of back and forth sprinkled with a healthy dose of political backbiting, the compromise solution to the federal student loan interest problem has finally made it to the desk of President Barack Obama for his signature. The new law will return the rates to their previous low levels, and will also peg them to 10-year treasury bills, taking away from Congress the authority to set them every year.
However, at the signing ceremony, Obama warned that this measure is only the first step in what will prove to be a hard legislative fight to come up with a more comprehensive solution to the problem of college affordability. Speaking at the Oval Office, Obama praised lawmakers on both sides of the aisle for the work they put in to reach a compromise, but added that “our job is not done.”
According to an Associated Press report, the President joked that he doesn’t often get to sign bills anymore, taking a friendly jab at the legislative backlog in Congress due to the ideological divide now splitting the Democratic and the Republican parties.
But even the feel-good moment at the White House came with reminders of the bitter partisanship that still makes future deals incredibly difficult for Obama. House Speaker John Boehner, R-Ohio, called the law part of the “Republican jobs plan,” while House Democratic leader Nancy Pelosi of California said it “stands in stark contrast to the House Republicans’ plan to saddle families with billions more in student debt.”
The rare compromise emerged only after a frenzy of summer negotiations, with lawmakers at odds over how loan rates should be set in the future even while they agreed that a doubling of rates — it kicked in July 1 when Congress failed to act before the deadline — would be bad policy and bad news for students.
Although negotiations over the final version of the bill were at times contentious, in the end, lawmakers were able to come up with a compromise that drew the support of overwhelming majorities in both chambers of Congress. The bill passed the Democratic-controlled Senate with a vote of 81 to 18 and the Republican-controlled House with the final tally of 392 to 31.
For federal student loans originating this fall, the law sets the interest at 3.9% for undergraduates, 5.4% for graduate students and 6.4% for parent loans. The rates are guaranteed for only one year and will go up with the price the government pays to borrow money.
The legislation links student loan interest rates to the financial markets. It offers lower rates this fall because the government can borrow money cheaply at this time. If the economy improves in the coming years as expected, it will become more costly for the government to borrow money, and that cost would be passed on to students.
About 11 million students this year are expected to have lower interest rates, saving the average undergraduate $1,500 on interest charges on this year’s loans.