The cost of borrowing for tuition, housing and books will be less expensive for Northern Illinois University students and their parents this fall as a result of Senate passage of a bipartisan proposal linking interest rates on federal student loans to the financial markets, providing lower interest rates right away. Rates for future years will be tied to market rates ensuring that the federal student loans interest rates stay below private loan rates while providing safeguards and guarantees for students.
“This is certainly good news for our students,” said NIU President Douglas D. Baker, who discussed this issue and others affecting higher education with lawmakers on Capitol Hill earlier in the week.
The measure was similar to one that already had passed the Republican-led House. Leaders from both chambers said they predicted the differences to be resolved before fall loan periods and disbursements begin.
“This compromise is a major victory for our nation’s students,” President Barack Obama said in a statement.
Undergraduates this fall would borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents would borrow at 6.4 percent. The rates would be locked in for that year’s loan, but each year’s loan could be more expensive than the last if it becomes more expensive for the government to borrow money as the economy picks up.
Rates on new subsidized Stafford loans doubled to 6.8 percent July 1 because Congress could not agree on a way to keep them at 3.4 percent. Without congressional action, rates would stay at 6.8 percent — a reality most lawmakers called unacceptable, although deep differences emerged, even among allies, as to how to remedy it.
“Earlier focus had been on the increase to the subsidized student loan rate, which is only a small percentage of the student loan borrowing,” said NIU director of Financial Aid Rebecca Babel. “We’re very pleased with this action, which not only addresses that, but all student loan rates for all of our students—our graduate students, our law students, and subsidized and unsubsidized loans for undergraduates.”
The White House and its allies said the new loan structure would offer lower rates to 11 million borrowers right away and save the average undergraduate $1,500 in interest charges. Democratic leaders had anticipated defections from within their ranks but counted on Republican support to help them win passage.
“This is a long-term fix,” added Babel, “not just another in a series of one-year fixes.”
The compromise that came together during the last few weeks would benefit students through the 2015 academic year. After that, interest rates could climb above the 3.4 percent rate they were at when students left campus in the spring, if congressional estimates prove correct.
As part of the compromise, Democrats won a protection for students by capping rates at a maximum 8.25 percent for undergraduates. Graduate students would not pay rates higher than 9.5 percent, and parents’ PLUS loan rates would top out at 10.5 percent.
Using Congressional Budget Office estimates, rates would not reach those limits in the next 10 years. The CBO also estimated the bill as written would reduce the deficit by $715 million over the next decade. During that same time, federal loans would be a $1.4 trillion program.
Senate Republicans pushed the interest rates to be linked to the financial markets and backed the measure. The deal, which ties the rate to the cost of money based on the June auction of the 10-year Treasury bill, was negotiated by Democratic Sen. Joe Manchin of West Virginia and GOP Sens. Richard Burr of North Carolina, as well as Alexander, King and Sen. Dick Durbin, D-Ill.
A delegation of NIU administrators that included President Douglas D. Baker met with Sen. Durbin and other Illinois lawmakers in Washington, D.C. on Monday and Tuesday, and student loan interest rates was at the top of the list of policy issues they discussed.
Sen. Tom Harkin, who chairs the Senate Health, Education, Labor and Pensions Committee, suggested a rewrite of the Higher Education Act this fall could include a comprehensive review of college costs and could revisit the loan rates for future classes.