WASHINGTON - Faced with a July 1 deadline, the Senate was unable to reach a compromise on student loans last night, which means the interest on subsidized Stafford loans for hundreds of thousands of students will double next week.
Although Senate Democrats pledged to have a floor vote on a revised approach after the July 4 recess that would extend the current low rates of 3.4 percent for one year and make them retroactive to July 1, there is no guarantee that bill can pass the Senate or the House.
"If we don't act by Monday, 7.4 million students nationwide will see their interest rates double," said Sen. Kay Hagan, adding that this would "effectively stick those students with an extra $1,000 a year each of additional loan costs."
At a news conference, Hagan, D-N.C., and Sen. Jack Reed, D-R.I., unveiled the revised approach. Their bill, which won the backing of Sen. Sherrod Brown, D-Ohio, and more than 30 other senators, would be voted on after lawmakers return from the July Fourth recess, which started today.
"There's a lot of activity out there and people upset, but we can’t get the House to do anything, and enough Republicans in the Senate just want to let the interest rates go up," Brown said. "Whatever formula they’re proposing, the interest rates are going to go up significantly under their plan."
Taylor Stepp, president of Ohio State University’s undergraduate student government, said he was "really frustrated, because it seems like they are playing politics on this issue."
"With the rising costs of college, students can’t be expected to pay a few extra thousand dollars in debt a year."
The uncertainty is what’s most difficult for students, said Martin Maliwesky, dean of enrollment services at Columbus State Community College.
"Autumn semester is just around the corner, and not knowing the rate makes it hard for students to know how much they can realistically afford to borrow," he said.
Until a decision is reached, Ohio University’s financial-aid director, Valerie Miller, is advising students to expect the worst: a doubling of the rates. About 67 percent of the undergraduate students at OU take out a Stafford loan, she said.
Still, she’s hoping for the best and grateful that the debate has focused a national spotlight on the need to rein in college costs and increase student financial aid.
In May, the House approved its version of the bill, tying the interest rate to a formula made up of the 10-year Treasury note plus 2.5 percent. The cap would be 8.5 percent.
House Speaker John Boehner, R-West Chester, charged that "interest rates on student loans are about to double because the president and Senate Democrats won’t resolve this impasse."
But Sen. Rob Portman, R-Ohio, suggested a compromise would be reached after the recess, saying, " If you look at the proposal from the White House and the proposal from Senate Republicans, they’re very similar." Both plans go "to a market-based interest rate that helps all students," he said, " not just subsidized Stafford loans, but all of them. We’re not far apart."
Last night, Portman said he would back an alternative introduced by Sen. Joe Manchin, D-W.Va. That bill would tie student-loan interest rates to the 10-year Treasury note and an additional 1.85 percent for undergraduate Stafford loans.Loan rate hike looms for college students »