WASHINGTON - A bipartisan coalition of senators is working on a compromise to avert an impending July 1 doubling of subsidized Stafford loan interest rates that would affect as many as 7 million college students.
The draft proposal gained momentum Thursday following a private meeting between Senate Democrats and White House chief of staff Denis McDonough, according to senators who attended the meeting.
"There's some meaningful bipartisan conversation going on and I think we're starting to narrow down the actual areas of agreement and difference," said Senate Majority Whip Dick Durbin, D-Ill., who added that it remained possible to approve legislation ahead of the July 1 deadline, when interest rates are set to jump from 3.4% to 6.8%. If the deadline passes, Congress could still address the loan rate retroactively.
The compromise under negotiation would create a three-tier loan-rate system for undergraduate, graduate, and PLUS loans which would be tied to the interest rate on a 10-year Treasury note and would be locked at the initial rate for the life of the loan.
For example, under the draft proposal, interest rates today would be 3.81% for undergraduate loans, 5.31% for graduate loans, and 6.31% for PLUS loans. Each of the loan rates is lower than the 6.8% rate that would affect all borrowers if no action is taken.
Senators working on the compromise include Richard Burr, R-N.C.; Tom Coburn, R-Okla.; Joe Manchin, D-W.Va.; and Angus King, I-Maine.
The student loan debate is a rare circumstance in which the White House policy position more closely tracks with Republicans than congressional Democrats.
Both President Obama and leading Republicans have offered proposals to tie loan rates to the interest rates on a 10-year Treasury note instead of current law which allows Congress to set the rate. Democrats prefer a two-year extension of the current rate in order to allow more time to revamp the student loan program next year when Congress reauthorizes the Higher Education Act.
Sen. Tom Harkin, D-Iowa, has been a staunch advocate of extending the current rates, but he acknowledged Thursday that consensus may be building around this deal. Harkin, who chairs the Senate Health, Education, Labor and Pensions Committee, added, "Next year we will have the Higher Education Act on the floor so the things that are done now can be revisited."
But Harkin insisted that any final compromise would need to include caps on interest rates. "A cap is not negotiable. We have to have a cap," Harkin said.
Republicans were buoyed by a report from the non-partisan Congressional Budget Office that said the proposal would save $8.6 billion over the next 10 years if enacted. Cost savings are critical for GOP support.
The Republican-led House has already approved a competing student loan plan, but it faces a veto threat from the White House. House Speaker John Boehner, R-Ohio, sent Obama a terse letter Thursday, calling on him to put pressure on Senate Democrats to pass a bill. "With Republicans and you in general agreement on the policy, it is difficult to identify any motivation other than politics to explain why a solution has not already been signed into law," Boehner wrote.
Congress lowered interest rates on subsidized student loans in 2007 from 6.8% to 3.4% but that legislation expires July 1.