The U.S. Senate is tantalizingly close to passing legislation reversing the recent doubling of interest rates on federally subsidized student loans.
Rates doubled on July 1, jumping from 3.4 percent to 6.8 percent. A bipartisan deal crafted by Senate Democrats should pass muster in both chambers of Congress. Relief for student borrowers would come in time for fall quarter.
The Bipartisan Student Loan Certainty Act would peg loan rates each academic year to the U.S. Treasury’s 10-year borrowing rate plus additional percentage points.
Some Democrats are unhappy because the compromise means low rates for now but higher ones over time, perhaps higher than the current 6.8 percent rate.
Lawmakers must overcome any discomfort and help pass this bill. A cap on interest rates would act as a strong guardrail against unreasonable increases. Undergraduate loan rates would be capped at 8.25 percent, graduate loans at 9.5 percent, and loans taken out by parents of students at 10.5 percent.
The White House agrees tying rates to the Treasury rate makes better sense long term than the current fixed-rate student loans.
An important point of contention is the $715 million the Congressional Budget Office estimates the federal treasury will take in over the next decade. The government would profit because the student loan rate would be higher than the treasury rate. Democrats want the extra revenue to reduce college costs. Republicans want to use it to pay down the deficit.
Deficit reduction should not be done at the expense of college students. The better option, offered as an amendment by U.S. Sen. Patty Murray, D-Wash., and Sen. Al Franken, D-Minn., would redirect the money to the federal Pell Grant program, which faces a $793 million shortfall in 2015.
Once this deal is done, Congress should use its muscle to wrestle with other pieces of the college-cost conundrum: rising tuition, inadequate financial aid and dismal job prospects after graduation.