Student Loan Deal Is Set To Become Law

PHOTO: President Barack Obama urges Congress to pass legislation that would keep federal student loan rates from doubling on June 21, 2012.Chip Somodevilla/Getty Images
U.S. President Barack Obama urges Congress to pass legislation that would keep federal student loan rates from doubling during an event in the East Room of the White House June 21, 2012 in Washington, DC. Congress passed a stop-gap measure that year. The Senate passed a more long-term solution on July 24, 2013.

Folks, it looks like we finally have a student loan deal.

The Senate passed a bill Wednesday evening that would tie federal educational loans' interest rates to the market, and in a seemingly miraculous turn of events, the GOP-led House is set to approve the proposal, as well.

What would that mean for students?

Undergraduates who take out new subsidized Stafford loans this fall would pay about 3.9 percent in interest. Graduate student loans would come with 5.4 percent interest rates. Those new low rates for both undergraduates and graduate students would apply retroactively to any loans taken out after July 1.

Rates on subsidized Stafford loans had doubled to 6.8 percent that day, a development that Congress had hoped to avoid. But partisan bickering stalled their efforts. Now, it appears they've worked out a solution.

Interest rates would be tied to 10-year Treasury notes, meaning as the economy improves, interest rates could go up, but only for new loans. The interest rate for each individual loan would remain what it was when the money was first borrowed.

And the bill caps interest rates: Undergraduates wouldn't have to pay more than 8.25 percent a year in interest, while graduate loans wouldn't top 9.5 percent.

President Obama praised the bill's passage in a statement and urged the House to send it to his desk for a signature as soon as possible.

"I hope both parties build on this progress by taking even more steps to bring down soaring costs and keep a good education – a cornerstone of what it means to be middle class – within reach for working families," he said, touching on what many people have said most needs to be addressed: "the rising price tag of a college degree."

But not all Democrats support the plan. More than a dozen voted against it in Wednesday's 81-18 vote.

On the Senate floor, Sen. Tammy Baldwin (D-Wis.) explained her no-vote: "Not only does this legislation raise long-term loan rates for students, it fails to close tax loopholes, and does not ask the wealthy to pay their fair share."

A group of Democratic senators, including Elizabeth Warren (D-Mass.), have said the interest rates are too high, and have criticized the fact that the government profits from students' repayments.

But Education Secretary Arne Duncan said during a press call Tuesday that it wasn't accurate or fair to say the government profits from student loans, because it's impossible to predict future default rates and interest rates.

The House is expected to take up the plan soon. House Speaker John Boehner (R-Ohio) said in a statement before the Senate vote that it mirrored a plan the Republican-controlled House passed in May.

"The House will act expeditiously," he said in a statement after the Senate vote.