WASHINGTON -- Despite strong opposition from liberals, the Democratic-controlled U.S. Senate approved a bill Wednesday to tie federal college loan rates to financial markets to retroactively roll back an unpopular July 1 rate hike.
The bipartisan legislation was approved 81-18.
The GOP-controlled U.S. House is expected to approve the legislation before the August recess. President Obama supports the bill and commended the bipartisan effort that produced it, the White House said in a statement issued Wednesday. The legislation will affect seven million students heading to college this fall.
The bill will bring down interest rates for subsidized Stafford loans in the short-term. These rates doubled to 6.8% on July 1 because Congress could not come to terms on an agreement ahead of that deadline. Under the legislation, undergraduates will be able to borrow at 3.9% for this school year; graduate students at 5.4%, and parents at 6.4%.
Liberal Democrats are wary that the legislation could allow interest rates to rise above 6.8% in future years as the financial markets recover and interest rates rise.
"The truth of the matter is, if the bill on the floor passes without amendment, it would be a disaster for the young people of our country who are looking to go to college and for the parents who are looking to help pay their bills," said Sen. Bernie Sanders, I-Vt., who voted against the bill. Sanders offered an amendment to sunset the legislation in two years, but it was rejected.
The legislation includes loan interest rate caps at 8.25% for undergraduates, 9.5% for graduates, and 10.5% for parents. The non-partisan Congressional Budget Office estimates rates would not hit the rate caps within the next decade.
An effort by Sens. Jack Reed, D-R.I., and Elizabeth Warren, D-Mass., to put tighter interest rates caps on student loans was also rejected. Reed and Warren also voted against the bill.
Instead of Congress continuing to set interest rates on student loans, future borrowers will see their loans tied to the U.S. Treasury 10-year borrowing rate. The legislation creates a three tier systems, to charging an additional 1.85% for undergraduate Stafford loans, 3.4% for graduate Stafford loans, and 4.4% for PLUS loans, which parents can take for their children. The interest rate would be fixed over the life of the loan.
The legislation provided a rare area of accord between the Obama administration and congressional Republicans. The president included a similar proposal in his budget this year, which House Republicans touted in initial legislation.
House Speaker John Boehner's office noted the similarities between the House GOP proposal and the final bill. "A victory indeed, and one that shows when we have common ground, we should seize it on behalf of the people we serve," said a blog posted Wednesday on the speaker's official Web site.