WASHINGTON -- A bipartisan bill that would reduce the costs of borrowing for millions of students passed the House yesterday and was heading to President Barack Obama for his signature.
The legislation links student loan interest rates to the financial markets, offering lower rates for most students now but higher ones down the line if the economy improves, as expected. Even as they were preparing to pass the bill, many lawmakers were already talking about a broader approach to curbing fast-climbing costs.
"Going forward, the whims of Washington politicians won't dictate student loan interest rates, meaning more certainty and more opportunities for students to take advantage of lower rates," House Speaker John Boehner (R-Ohio) said.
The measure passed, 392-31.
Undergraduates this fall would borrow at a 3.9 percent interest rate for subsidized and unsubsidized loans. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year's loan, but each year's loan could be more expensive than the last. Rates would rise as the economy picks up and it becomes more expensive for the government to borrow money.
But for now, interest payments for tuition, housing and books would be less expensive under the House-passed bill.
Earlier this year, the House passed legislation that is similar to what the Senate passed later. Both versions link interest rates to 10-year Treasury notes and remove Congress' annual role in determining rates.
"Campaign promises and political posturing should not play a role in the setting of student loan interest rates," said Rep. Virginia Foxx (R-N.C.). "Borrowers deserve better."
Negotiators of the Senate compromise were mindful of the House-passed version, as well as the White House preference to shift responsibility for interest rates to the financial markets. The resulting bipartisan bill passed the Senate 81-18.
With changes made in the Senate -- most notably a cap on how interest rates could climb and locking in interest rates for the life of each year's loan -- Democrats dropped their objections and joined Republicans in backing the bill.
Interest rates would not top 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents' rates would top out at 10.5 percent. Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years.
The White House endorsed the deal over objections from consumer advocates that the proposal could cost future students.