Deal on student loans stumbles on costsAn emerging deal to lower interest rates on student loans hit a major obstacle Thursday after lawmakers were told it carried a $22 billion price tag over the next decade.
By: Philip Elliott, Associated Press
WASHINGTON — An emerging deal to lower interest rates on student loans hit a major obstacle Thursday after lawmakers were told it carried a $22 billion price tag over the next decade.
The proposal was designed to offer Democrats the promise that interest rates would not reach 10 percent and to give Republicans a link between borrowing terms and the financial markets that they sought. But at that cost, the bipartisan coalition behind it decided to push pause and return to negotiations to bring that cost down.
The estimate was described by a congressional aide involved in the negotiations. The aide was not authorized to discuss the proposal by name and insisted on anonymity because the Congressional Budget Office report had not yet been widely released.
Sen. John Hoeven, R-N.D., one of nine senators from all parties negotiating the Student Loan Certainty Act, told the Herald Thursday that negotiators are working on a new interest rate cap that will be revenue neutral. “We have a good chance of getting something and getting it by next week.”
Interest rates on subsidized Stafford loans doubled to 6.8 percent last week after senators failed to agree on a way to maintain the lower rate.
Sen. Heidi Heitkamp, D-N.D., who is not among the negotiators, earlier favored extending the 3.4 percent rate for another two years while Congress works to overhaul student loans.
She responded Thursday in a statement: “I am still working with colleagues on various proposals, but I am committed to bringing the rates back down on new student loans. I used student loans to pay for college, and I want higher ed to be affordable for future North Dakotans.”
There are 20,041 subsidized Stafford loan borrowers in North Dakota, Heitkamp’s office said in June, citing the U.S. Department of Education.
The compromise being negotiated is similar to a bill that House Republicans have passed, and to President Barack Obama’s budget proposal.
“There is no question that there is a compromise available on this important issue and that the sides have not been that far apart and we just need to get it done,” White House spokesman Jay Carney said before the Congressional Budget Office released its estimate.
“We have been working with lawmakers to make that compromise happen. We need to make sure that students don’t see their rates double,” he said.
According to Hoeven’s office, the compromise would tie all federal student loan rates to the 10-year U.S. Treasury note to reflect market conditions. The rates would be fixed for the life of the loan.
If passed, interest rates on subsidized and unsubsidized Stafford loans for undergraduates would be 3.66 percent. That’s better than the current rate of 6.8 percent, his office said. Rates for Stafford loans for graduate students would be 5.21 and rates for PLUS loans taken out by parents would be 6.2 percent, which would be lower than the current rate of 7.9 percent.
Hoeven said there is already a kind of cap on interest rates: When loans are consolidated the rate is set at 8.25 percent. Also in place, he said, is a cap on repayment equivalent to 15 percent of a borrower’s income, and the loan is forgiven after 25 years if not fully repaid.
Negotiators are working on a cap on all loans, something Democrats have favored, and whether it’s considered acceptable to Republicans depends on the estimated impact it would have on the federal budget as determined by the Congressional Budget Office.
Serious work on a compromise came just hours after Democratic-led efforts to restore the 3.4 percent interest rates failed once more to overcome a procedural hurdle in the Senate. After several failures to find a stopgap measure, Democrats abandoned that tactic and instead looked for a way to lower rates for students before their return to campus this fall.
Obama’s chief of staff, Denis McDonough, and Education Secretary Arne Duncan met with lawmakers Tuesday night to discuss possible options, including the market-based approach Obama included in his budget outline. Democrats insisted they try one last time to restore the 3.4 percent rate.
After that failed, lawmakers turned to a compromise approach and met Wednesday in the office of Sen. Dick Durbin, D-Ill., to discuss the next steps. White House education and budget advisers joined those conversations and helped guide lawmakers to the proposal under consideration.
Democratic Sen. Tom Harkin of Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, joined negotiations on a potential deal he previously called unacceptable. He secured concessions on rate caps from the main authors of an earlier potential compromise, Sens. Joe Manchin, D-W.Va., Richard Burr, R-N.C., and Angus King, I-Maine.
All said they were willing to tinker with some of the details to make it more acceptable to Harkin and his Democratic allies.
Tennessee Sen. Lamar Alexander, the top Republican on the Senate education committee, joined in and suggested he could bring with him Republican votes that would help overcome a 60-vote procedural hurdle in the chamber.
But at $22 billion over the next 10 years, it was likely to be far too much red ink to win Republican votes.
If fresh negotiations prove fruitless, millions of students returning to campus next month will find borrowing terms twice as high as when school let out. Without congressional action in the coming weeks, the increase could mean an extra $2,600 for an average student returning to campus this fall, according to Congress’ Joint Economic Committee.
Asked what North Dakotans have told him they want in a student loan deal, Hoeven said he has not heard specifics from anyone whether on an interest-rate cap or other elements. What they want is “certainty,” he said. “They want a program that provides low-cost, dependable financing for college education. They want to know it’s going to be there.”
Herald Staff Writers Tu-Uyen Tran and Jennifer Johnson contributed to this report.