The Senate compromise would base interest rates on the 10-year Treasury note, plus 2.05 percent for both the subsidized and unsubsidized portions of the undergraduate loans, 3.6 percent for graduate loans and 4.6 percent for PLUS loans.
The interest rates hinge on the 10-year Treasury note, but not the daily rate. Each year’s interest rates would be determined by the yield of the last 10-year Treasury auction prior to June — so all loan rates this year would be based off the 1.81 percent rate from May, not the current yield of 2.5 percent. The loan rates would be capped at 8.5 percent, 9.5 percent and 10.5 percent, respectively.
The Congressional Budget Office scored it as saving $715 million over 10 years.
The House bill passed in May would also link student loan interest rates to the 10-year Treasury note, with slightly different add-ons: plus 2.5 percent for the subsidized and unsubsidized portions of the undergraduate loan and 4.5 percent for graduate loans. Those rates would be capped at 8.5 percent and 10.5 percent, respectively.
The budget office scored that proposal as saving $3.7 billion over 10 years. The bill directed those savings to be used to pay down the deficit.
Lingering Democratic Divisions
The White House issued a veto threat on the House bill in May but threw its support behind the bipartisan Senate measure Wednesday in a Statement of Administration Policy that underscored the differences between the two.
“The Senate amendment does not contain the flaws that were in some of the previous legislative efforts to address this issue,” the statement said. “In particular, the amendment rejects a variable interest rate that resets every year, which would put students at risk of paying more over time. ... The amendment also rejects unfair and unwise approaches that would raise student loan interest rates to pay for deficit reduction.”
That wasn’t enough, however, to quell the opposition of a small group of Senate Democrats.
“Why are we producing a bill which is basically a Republican bill, very close to what the House Republicans passed?” asked Sen. Bernard Sanders, I-Vt., who caucuses with Democrats. “They say, ‘This is a pretty good bill and we’ll accept it.’ Well, if the most right-wing [House] in American history thinks this is a pretty good bill, I would hope Democrats would say ... ‘Well, maybe we can do better than that.’”
Senate Health, Education, Labor and Pensions Chairman Tom Harkin, D-Iowa, who voted for the bill but was vocal about his displeasure, noted, “Compromises are tough things sometimes.
“This wouldn’t have been the bill I would have written, but I think everyone involved in the negotiations would say the same thing,” Harkin said.
Rep. Elijah Cummings, D-Md., right, hugs Harold Schaitberger, General President of the International Association of Fire Fighters, after the Congressman spoke at the IAFF's Legislative Conference General Session at the Hyatt Regency on Capitol Hill, March 9, 2015. The day featured addresses by members of Congress and Vice President Joe Biden.