Congress might be one step closer to sealing a student loan deal. Yesterday, a bipartisan group of senators reached a compromise that is expected to be voted on any day now. According to The Washington Post, the agreement would tie federal student loan interest rates to the financial markets, resulting in a lower Stafford loan interest rate. Currently the interest rate on these loans for the upcoming school year stands at its recently doubled 6.8 percent rate.
Under the proposed law, the rates on federal Stafford subsidized and unsubsidized would be 3.85 percent for the upcoming school year and have an interest rate cap at 8.25 percent. Graduate students and parents of dependent undergrads would have rates set at 5.41 percent and 6.41 percent respectively with rate caps set at 9.5 percent and 10.5 percent.
Critics argue that the benefits of the agreement won't last long for students. The Institute for College Access and Success, or TICAS, reports that under the agreement, Stafford loan interest rates will stay low for the next few years, but are projected to exceed the current rate for grad students by 2015 and for undergrads by 2017.
"Now is the time to be making college more affordable and not increasing costs for students and families," says Lauren Asher, president of TICAS. "We and other groups that advocate for students and borrowers have strongly supported (a) temporary extension of the 3.4 percent rate so that Congress and the administration would have more time to come up with comprehensive reforms that really make sense for students and family."
Asher adds that student loan interest rates are only one piece of the fight against student debt.
"What a comprehensive reform should really be looking at is not just interest rates but how to keep student loans affordable, streamline the loan program and better target benefits" such as interest-free deferment options she says.
Chris Lindstrom, higher education program director for the U.S. Public Interest Research Group, also says that the goals of the agreement aren't designed with students or their bill-paying families in mind. If enacted, the increased revenue generated by the deal is projected to reduce the deficit by an additional $715 million over the next 10 years.
"The costs that are built into the program aren't even related to the cost of the loan program," says Lindstrom. "We think that student loans should be about investing in a student's future and in the country's future and it should be about making education more affordable and accessible. Instead, what we have is the Senate forcing students to pay more in order to reduce the deficit."
The Senate agreement isn't the only student loan option on the table. A similar measure called the Smarter Solutions for Students Act passed the House in May. Another Senate proposal, the Keep Student Loans Affordable Act of 2013, offers a year-long freeze on current loan interest rates until Congress can create a more comprehensive solution.
We will continue to cover student loan legislation as news develops. For more on our other college finance coverage, please read the following: