By Michael Stratford of The Chronicle of Higher Education
U.S. Senate leaders reached an agreement on Tuesday over how to pay for a temporary freeze on the interest rate on certain federally-subsidized student loans.
The deal, if agreed to by the House of Representatives, would prevent the interest rate on new subsidized Stafford loans to undergraduate students from doubling, from 3.4 percent to 6.8 percent, on July 1.
The Senate majority leader, Sen. Harry M. Reid, Democrat of Nevada, and the minority leader, Sen. Mitch McConnell, Republican of Kentucky, said they had reached an agreement on how to pay for a one-year extension of the lower rate, according to news reports.
The compromise, as described by Senate aides, calls for increasing the premiums on federal pension insurance and putting a six-year limit on how long the government will pay the interest on the loans while students are still in school.
The leaders are considering attaching the deal to a bill to finance highway programs, which they are also negotiating this week.
Both Democrats and Republicans have said they want to find a way to extend the lower interest rate for a year. But the parties have been at a stalemate for the past several months over how to offset the approximately $6-billion cost of temporarily freezing the rate.
Each side has floated proposals that they know are unacceptable to the other party. House Republicans in April passed a bill, mostly along party-lines, that would pay for the rate extension by tapping into a fund in the 2010 health-care law set aside for preventative health care. Senate Democrats, with the support of the White House, had proposed to pay for the extension by raising taxes on some corporations.
The interest-rate relief would affect about a third of newly issued federal student loans. Graduate students would still pay more, as would all borrowers with unsubsidized student loans. And the freeze would last only a year; after that, the rate would revert to 6.8 percent, without additional intervention by Congress.
Despite the limited scope of the rate extension, however, Congressional leaders and the two presidential campaigns have sought to use the issue to score political points with voters.