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Student Loan Rates Likely to Double With No Congressional Agreement in Sight

Bill Clark/CQ Roll Call File Photo
Democrats originally hoped to peg interest rates to the 91-day Treasury bill, but they agreed to a 10-year rate, Harkin said, in hopes that Republicans would agree to a cap to protect borrowers from spikes in the market.

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.

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