WASHINGTON -- A bipartisan compromise on student loans started to take shape in the Senate yesterday, linking interest rates to the financial markets. If approved, it would prevent rates for new borrowing from doubling in coming days.
Students from lower-income families, who pay substantially lower interest rates than those more affluent, would see interest rates rise slightly to 3.8 percent on new subsidized Stafford loans.
Despite the increase, the rate is still lower than the 6.8 percent students would face if Congress doesn't reach a deal by July 1 to prevent rates from doubling from the current 3.4 percent. Students from more affluent families and graduate students could also see interest rates on non-subsidized loans decrease in the coming year, according to the preliminary outline.
Rates for new loans could vary yearly, based on the financial markets. But once students received a loan, the interest rate would be set for the life of that year's loan.
The proposal, developed during conversations among Democratic Sen. Joe Manchin of West Virginia, Republican Sen. Tom Coburn of Oklahoma and independent Sen. Angus King of Maine, was being passed among offices. None of them publicly committed to the plan until they heard back from the Congressional Budget Office about how much the proposal would cost.
A draft of the proposal was obtained yesterday by The Associated Press.
A day earlier, Senate Majority Leader Harry Reid told reporters negotiations were afoot and predicted a deal could be reached. He mentioned talking with Manchin and King, as well as Democratic Sens. Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.
"The last 24 hours, I've spent hours working with interested senators," Reid said Tuesday.
"We're not there yet," he added.
Education Secretary Arne Duncan and White House economic adviser Gene Sperling would have lunch with senators today, Reid said.
Republicans, meanwhile, have been unrelenting in their criticism of Democrats for opposing tenets of Obama's student loan proposal, chiefly rates that change every year to reflect the markets.
"It's not fair to these students and not fair to students across the country who need to know what the cost of their loans is going to be and what the interest rate is going to be," Republican House Speaker John Boehner told reporters.