WASHINGTON — Students applying for financial aid for the coming school year could find some comfort in a bipartisan student loan compromise taking shape in the Senate that would prevent interest rates from doubling and set a single rate each year for undergraduate students, rich or poor.
Interest rates, which would be tied to the financial markets, would rise slightly to 3.8 percent for low-income students receiving new subsidized Stafford loans this year but not double as they're scheduled to do July 1. Despite the increase, the rate is still lower than the 6.8 percent students would face absent congressional action. The current rate is 3.4 percent.
More affluent undergraduates would see a bigger decline; the interest rate on new unsubsidized loans would drop from 6.8 percent to 3.8 percent under current market conditions.
Rates for all new federal student loans would vary from year to year, according to the financial markets. But once students received a loan, the interest rate would be set for the life of that year's loan.
Rates for parents and graduate students also would be tied to the markets.
A draft of the proposal was obtained Wednesday by The Associated Press.
Congress is grappling with student loans for the second straight year, with each party pointing fingers at the other about who would shoulder the blame if rates double. The House passed legislation that also ties rates to the markets but the Senate earlier this month voted down two competing proposals.
The latest Senate compromise, developed during conversations among Democratic Sen. Joe Manchin of West Virginia, Republican Sen. Tom Coburn of Oklahoma and independent Sen. Angus King of Maine, was being passed among offices. None of them publicly committed to the plan until they heard back from the Congressional Budget Office about how much the proposal would cost.
A day earlier, Senate Majority Leader Harry Reid told reporters negotiations were afoot and predicted a deal could be reached. He mentioned talking with Manchin and King, as well as Democratic Sen. Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.