WASHINGTON – With student loan rates set to double in about four weeks, competing proposals to prevent the increase were defeated in two Senate votes Thursday.
The House voted last month on a proposal that would tie interest rates for Stafford loans to the Treasury’s 10-year borrowing rates, which its Republican sponsors said was in line with principles outlined by the Obama administration. Based on current forecasts, the interest rate for both subsidized and unsubsidized Stafford loans would be 5 percent next year. The proposal would cap such loans at 8.5 percent.
The White House, however, offered its own plan that differs slightly by locking in that variable rate for the duration of the loan, rather than allowing it to reset each year. The plan would not place a ceiling on rates, but would continue to allow college graduates to repay loans as a percentage of their overall income. For a subsidized Stafford loan, the rate in 2014 would be 3.4 percent.
The Senate proposals took different approaches. The Democratic version would have extended the current rates for two years.
The Republican one would have tied the interest rates of all newly issued federal student loans, not simply Stafford loans, to Treasury rates. It would also, like the president’s plan, lock in that interest rate for the life of the loan. Under that plan, interest rates for all loans would be 5.5 percent next year.
The Democratic plan received 51 votes, nine short of the threshold needed; the Republican plan received 40 votes. Both votes were seen as political moves, with neither expected to pass.
The House and Senate have three weeks to reach a deal before they adjourn for recess.