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Senate Approves Bill Changing Student Loan Interest Rates
July 25, 2013
A bill that would change how student loan interest rates are set was approved by the Senate on July 24. The Bipartisan Student Loan Certainty Act of 2013, which passed by a vote of 81 to 18, would roll back the 6.8 percent interest rate on subsidized undergraduate loans that went into effect on July 1.
The Senate bill would tie the interest rate for subsidized and unsubsidized undergraduate Stafford loans to the 10-year Treasury note (T-bill) rate plus 2.05 percent, with a cap of 8.25 percent. Under that formula, interest on all undergraduate loans for the upcoming school year would be 3.9 percent.
For the first time, the interest rate on unsubsidized Stafford loans to graduate students (who are not eligible for subsidized loans) would be higher than those for undergraduates. Unsubsidized Stafford loans for graduate students would be set at the T-bill rate plus 3.6 percent, with a cap of 9.5 percent. PLUS loans for graduate students and parents would be tied to the T-bill rate plus 4.6 percent, and capped at 10.5 percent.
Two amendments were offered to the measure, one to sunset the provisions in two years, and the other to reduce the interest rate caps. Both amendments were defeated.
The 18 votes in opposition to the measure largely came from Senate Democrats, who were concerned the change would lead to increases in the cost of student loans in the future. They preferred merely resetting the rate for undergraduate subsidized loans at 3.4 percent, where it was before doubling to 6.8 percent on July 1. An earlier attempt, on July 10, to achieve that goal by offsetting costs of the reduction with changes in the tax code, was defeated in the Senate.
The legislation is expected to be passed by the House, which earlier this year approved a similar bill. The President issued a statement of support for the bill, and is expected to sign it promptly once it reaches his desk.