The US House passed student loan legislation Wednesday by a 392-31 vote, just in time before a month-long recess, sending the bill now to President Barack Obama for his signature, the New York Times reports. The president has already said he supports the legislation, the Washington Post reports.
The interest rates on student loans doubled on July 1 because Congress had not been able to reach a deal in time to stop the automatic increase. But the new law sets the rates based on market conditions, starting at a lower rate than the old law had allowed.
Under the new law, available here, interest rates at the time of borrowing would be in effect over the entire life of each loan, but rates would be adjusted each year for newly borrowed money. This year’s rates, for loans taken out after July 1, along with caps set on future increases, are as follows:
- Undergraduates will pay 3.86% interest on their loans, 8.25% cap
- Graduate students will pay 5.41%, 9.5% cap
- PLUS loans will pay 6.41% interest, 10.5% cap
Setting the caps was largely a compromise to Democrats, who were concerned about tying the rate to market indicators—about a third of the Democrats in the Senate opposed this bill last week, fearing it could potentially strap families with very high interest rates during times of high inflation. On the other side of this compromise, Democrats agreed to accept a single rate for all undergraduate loans, whether or not they were subsidized. The loans are subject to a fixed rate plus the yield on the 10-year Treasury note.
The rates are lower than they were before the legislation, and it’s hard to find fault with anything that looks like bipartisanship in Congress nowadays. But I would be remiss not to point out that banks get this money from the Fed at rates below 1 percent. The PLUS rate is still at least 5 percent higher than that.
