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Student Loan Fix Clears Congress
Updated: Wednesday, July 31 2013, 08:41 PM CDT
(CBS NEWS) -- A bill that would lower the cost of student loans has passed the House and is heading to President Obama for his signature.
The House on Wednesday gave final congressional approval to a bipartisan measure that links student loan interest rates to the financial markets. Most students would see lower interest rates in time for classes this fall.
"This is a win for students and taxpayers," said Rep. John Kline, the Republican chairman of the House Committee on Education and the Workforce.
The top Democrat on that committee joined Kline on the House floor to urge colleagues to back the bill.
"It saves students and families money," said Rep. George Miller, D-Calif.
After Congress failed to reach an agreement on student loans before the first of July, the interest rates on those loans doubled from 3.4 percent to 6.8 percent. The bill passed Wednesday would retroactively lower the interest rate in effect since July 1. Going forward, it would allow undergraduates this fall to borrow money at a 3.9 percent interest rate, graduate students to borrow at a 5.4 percent interest rate, and parents at a rate of 6.4 percent.
The adjusted student loan rates would be attached to the interest rate on money borrowed by the federal government, which is expected to rise as the economy gains traction. Democrats, as a condition of signing onto the compromise bill, demanded a set of caps that would ensure that the rate does not exceed 8.25 percent for undergraduates, 9.5 percent for graduate students, and 10.5 percent for parents.
The Congressional Budget Office, a nonpartisan agency that issues fiscal report cards on legislation passed by Congress, estimated that the bill, which governs a program worth an estimated $1.4 trillion, would reduce the deficit by $715 million over the next 10 years.
The House earlier this year passed legislation that is similar to what the Senate later passed. Both versions link interest rates to 10-year Treasury notes and remove Congress' annual role in determining rates.
"Campaign promises and political posturing should not play a role in the setting of student loan interest rates," said Rep. Virginia Foxx, R-N.C. "Borrowers deserve better."
Negotiators of the Senate compromise were mindful of the House-passed version, as well as the White House preference to shift responsibility for interest rates to the financial markets. The resulting bipartisan bill passed the Senate 81-18.
With changes made in the Senate - most notably a cap on how interest rates could climb and locking in interest rates for the life of each year's loan - Democrats dropped their objections and joined Republicans in backing the bill.
The White House has endorsed the deal, despite objections from consumer advocates that the proposal could cost future students.
"The bottom line is that students will pay more under this bill than if Congress did nothing, and low rates will soon give way to rates that are even higher than the 6.8 percent rate that Congress is trying to avoid," said Chris Lindstrom, higher education program director for the consumer group US PIRG.
The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges.
Lawmakers were already talking about changing the deal when they take up a rewrite of the Higher Education Act this fall. As a condition of his support, Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin won a Government Accountability Office report on the costs of colleges. That document was expected to guide an overhaul of the deal just negotiated.
"We will have the ability to come back and look," said Rep. Sheila Jackson Lee, D-Texas.
© 2013 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.