After months of legislative wrangling and one missed deadline, the Senate passed a bipartisan bill on Wednesday that would affix interest rates on federally sponsored student loans to financial markets, allowing them to vary over time but setting a cap on how high the rates are allowed to climb.
The compromise, negotiated by Sens. Joe Manchin, D-W.V., Richard Burr, R-N.C., and Lamar Alexander, R-Tenn., passed by a margin of 81 yeas to 18 nays.
Interest groups and liberal Democrats warned that the bill, after lowering rates in the near term, would expose borrowers to higher interest rates in the years ahead as the economy picks up steam.
Their concerns, however, failed to derail a bill that enjoyed the support of the White House and was passed by a bipartisan coalition of Republicans and Democrats who delivered a frank message to resistant caucus-members: this is the best we're going to get.
"The bill that is before us represents a number of compromises that were made on both sides...it's the best we can do," said Sen. Tom Harkin, D-Iowa, who chairs the committee with jurisdiction over education, before the bill's passage on Wednesday. "If we don't pass this today, there will be one sure effect: student loans will be almost twice what they would be under this bill."
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 5.9 percent interest rate, and parents at a rate of 6.4 percent.
President Obama in a statement lauded the bill's passage as a "major victory" for U.S. students.
"A better bargain for the middle class means making a college education available to every single American willing to work for it," he said. "I urge the House to pass this bill so that I can sign it into law right away, and I hope both parties build on this progress by taking even more steps to bring down soaring costs and keep a good education - a cornerstone of what it means to be middle class - within reach for working families."
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.
"That is a guarantee the rates won't go to high heavens," said Sen. Dick Durbin, D-Ill., on Wednesday. "At the end of the day, we have a very clear choice to make: stick with the 6.8 percent interest rate or lower it."
the suggestion that the bill was a compromise, arguing that it was too similar to legislation recently passed by the Republican-led House.
"At a time when Democrats control the White House and the U.S. Senate, we should not support bad legislation almost identical to that passed by a very conservative, Republican-led House," said Vermont Sen. Bernie Sanders, an independent who caucuses with Democrats, in a statement.
Added Sen. Elizabeth Warren, D-Mass., when the outlines of a compromise were announced last week: "I understand that compromise isn't always pretty, but there isn't any compromise in this bill."
Democratic leaders assured their restive rank-and-file that their concerns would be part of the discussion this fall on the Higher Education Act, providing at least the possibility of a subsequent adjustment of the deal.
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.
Senate Republican leader Mitch McConnell, R-Ky., hailed the bill before its passage on Wednesday as evidence that Democrats have "finally stopped obstructing. "
"At least now they're willing to put their partisan political fix aside and join President Obama and congressional Republicans" in resolving the standoff over student loans, he said. "Democrats can work with Republicans when they actually want to do it - when they check their partisan, take-it-or-leave-it approach at the door."