The U.S. Senate on Thursday blocked bills from both sides of the aisle aimed at preventing interest rates for new federally subsidized student loans from doubling from 3.4 percent to 6.8 percent on July 1.
The Republican legislation, the Comprehensive Student Loan Protection Act, would set the student-loan rate at two percentage points above the rate paid on ten-year Treasury bonds. The approach favored by Democrats, a repetition of last year’s stop-gap agreement, proposed to freeze the current interest rate of 3.4 percent for subsidized Stafford loans for another two years. Neither bill received the necessary 60 votes.
Critics of the Republican bill claimed that Treasury rates would rise in the coming years, hurting those families who borrowed funds expecting lower rates. Minority leader Mitch McConnell voiced conservatives’ objections to the Democratic bill, describing the freeze as a “short-term political patch” rather than a long-term solution.
Another Republican proposal passed the House last month and still remains alive in the Senate debates. This plan provides for both subsidized and unsubsidized loan rates to be recalculated each year according to ten-year Treasury notes, plus 2.5 percentage points for some loans and 4.5 for others, and places a cap on interest rates at 8.5 percent.
At a White House event last week, President Obama demanded that Congress address student-loan interest rates. He proposed a plan that would fix borrowing rates for the life of the loan and, unlike the Republican bill, would not place a cap on rates. The president criticized the House bill for failing to “lock in low rates for students next year,” stating that the lack of safeguards was “not smart.”