WASHINGTON — A bipartisan Senate accord supported by the White House to overhaul the federal student loan program is forecast to boost government profit and increase borrowing costs in the coming years, leading student groups and some Democrats to denounce the deal.
The compromise, reached by eight senators and blessed by the White House on Thursday, would result in an immediate reduction in borrowing costs under the federal student loan program — temporary savings that would be paid by graduate students and parents beginning in 2015, according to estimates derived from the White House’s most recent budget update.
Some undergraduate students will immediately pay more relative to borrowing costs that prevailed during the most recent school year, while the vast majority are forecast to pay more in the next five years, perhaps as early as 2016.
Reluctant Senate Democrats, who had previously spurned bipartisan deals that would achieve the same effect as the agreement, were threatened by the White House to either support the compromise or risk being publicly blamed by the White House for allowing interest rates for some borrowers to soar, Democratic congressional aides said.
On July 1, the interest rate on undergraduate loans for borrowers in need, known as subsidized Stafford loans, doubled to 6.8 percent as a result of previous legislation. Though the rate hike was set to affect only a quarter of new federal student loans, it provided the impetus for a round of furious negotiations between Senate lawmakers and the White House to overhaul the student loan program, in part because no one wanted to be blamed for the increase in borrowing costs.
The result is a federal student loan system with loan rates tied to the federal government’s cost to borrow over 10 years, replacing a system with rates set by Congress. The White House had previously proposed such a system, as have Senate and House Republicans.
Senate Republican leader Mitch McConnell of Kentucky said Thursday that plans previously proposed by congressional Republicans and the White House were “strikingly similar.”
Many Senate and House Democrats, however, preferred a system tied to the government’s cost to borrow over a much shorter period, which would have resulted in cheaper rates for students and their families.
“What we’ll see is that a generation of students … will be paying a lot more for their student loans,” a result that will “add to the debt of these students and their families, and it will restrict their ability to become … not only qualified workers in our economy but also the people that drive the economy,” Sen. Jack Reed (D-R.I.) said on the Senate floor.
“This is not the right approach going forward,” Reed added.
In the upcoming school year, undergraduate students will pay 3.86 percent for Stafford loans under the government’s student loan program. Graduate students will pay 5.41 percent for Stafford loans, and 6.41 percent for PLUS loans, which are used to finance education costs after Stafford limits are exhausted. Parents who borrow to help their children attend college also will pay 6.41 percent.
Click Here to continue reading.