With immigration center stage and a bipartisan agreement to stave off the student loan interest rate hike nowhere in sight, principal negotiators on both sides conceded Tuesday that rates will likely double on July 1 and will need to be fixed retroactively.
“We probably can’t get anything done this week,” Sen. Tom Harkin, D-Iowa, said. “We’re working on it, but there has been no agreement so far.
“Everyone is focused on immigration right now,” added Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee. “They haven’t turned their thoughts to this. We’ve talked about it in caucus a couple of times, but people are just focused on the immigration bill.”
Sen. Lamar Alexander of Tennessee, HELP’s ranking Republican, said resetting student loan rates retroactively would “be pretty easy to do” when Congress returns from its July Fourth recess. “But I’d like to get a consensus before we go home,” he added.
Harkin has been working with Sens. Jack Reed, D-R.I., and Elizabeth Warren, D-Mass., to craft a proposal that Republicans can swallow. Meanwhile, Alexander has been working with Sens. Richard M. Burr, R-N.C.; Tom Coburn, R-Okla.; Angus King, I-Maine; and Joe Manchin III, D-W.Va., on a proposal that appeases Democrats.
The two camps have been negotiating for weeks running up to the July 1 deadline, at which point the 3.4 percent interest rate on the subsidized portion of the federal Stafford loan is set to double for all new borrowers.
The groups have been making strides on an evolving proposal that would shift the fixed rate to a market-based rate pegged to the 10-year Treasury bill, but are currently sparring over whether to include a cap on the rates.
Democrats have said from the beginning that any proposal without a cap, including the White House proposal, is a non-starter.
“We’re willing to work with and jiggle interest rates around and things like that, but we’re not willing to give up a cap and Republicans say they don’t want a cap,” Harkin said. “That’s the logjam right now.”
Indeed, Democrats originally hoped to peg interest rates to the 91-day Treasury bill — the market-based rate previously used for the student loan program before Congress voted to fix the rates — instead of the 10-year Treasury bill. But they agreed to the 10-year rate, Harkin said, in hopes that Republicans would agree to a cap to protect borrowers from spikes in the market.
“We’ve compromised on a couple of very important items,” Harkin said. “We’re asking Republicans to compromise.”
HELP aides noted there was an 8.25 percent cap on subsidized and unsubsidized loans when interest rates were previously based on the market and borrowers hit that cap three separate times — in 1995, 1996 and 1997.
“The Democratic senators keep saying they want a cap, but I think many haven’t stopped to think there are already two caps,” Alexander countered. He was referring to options currently available in the student loan program that cap rates at 8.25 percent for borrowers who consolidate their loans, and another plan that caps yearly loan repayments to 10 percent of borrowers’ annual income.
“You have a right to consolidate your loan to 8.25 percent — that’s a cap,” Alexander said. “And the amount you have to pay back each year is a cap. And if you put more of a cap on there, you have to raise the rates to pay for it.”
Under the newest Democratic proposal, rates for subsidized and unsubsidized loans would be pegged to the 10-year Treasury plus 1.5 percent and 3.4 percent, respectively, and those rates would be capped at 8.25 percent.
Alexander said Burr, Coburn, Manchin and King plan to unveil their plan before members leave on Friday.
“If I were a betting person, I’d say it’s unlikely that gets done this week,” said Sen. John Thune, R-S.D. “I think that’s probably something for when we come back. And I suspect whatever fix eventually gets agreed to would be made retroactive, July 1.”
Kerry Young and Sarah Chacko contributed to this report.