WASHINGTON — The U.S. Senate failed to advance a short-term student loan interest rate extension on Wednesday, and is deadlocked on what to with the rates 10 days after they doubled.
Senators defeated an Al Franken-backed bill meant to reset interest rates on subsidized Stafford loans to 3.4 percent for one year. The Senate had previously voted down a two-year version of the plan, as well as a bill tying the interest rates to federal borrowing costs, similar to a plan passed by the U.S. House in May. Absent a deal, the interest rates doubled July 1, though lawmakers can retroactively set the rates.
Senate leadership and the White House have backed the rate freeze, with senators arguing lawmakers should wait to deal with interest rate until next year when Congress reauthorizes federal higher education policy. But Democrats haven’t been able to rustle up enough support to get a short-term fix past the Senate’s 60-vote procedural threshold — the vote Wednesday was 51-49.
“My educated guess is that we’re not going to get it,” Franken said during the vote Wednesday. “We’ve seen it voted down twice, we tried for a two-year, we tried for a one-year. It’s what I want to do because it’s 200,000 Minnesota students who get these subsidized Stafford loans. I don’t want to make things worse for them.”
Meanwhile, a small group of senators — two Republicans and two Democrats, led by West Virginia Democrat Joe Manchin — have introduced a bill they say is a compromise between the White House and the House GOP, both of whom want to set student loan interest rates to the market but haven’t agreed on the specifics. The bill has yet to get a vote.
Many Democrats fundamentally object to market-based rates, arguing that while they would keep interest rates reasonably low in the short-term, they’re likely to increase in the future. Within five years, according to the Congressional Budget Office, the market rate, plus a little extra tacked on by government, will hit the 8.5 percent cap included in the House plan, which means students would pay more than they would under the current 6.8 percent rate that kicked in on July 1. (Take a look at Beth Hawkins’ FAQ for more detail.)
For Franken’s part, he said he’s not dead-set against a market-based plan, just that it has to have lower interest rates for subsidized Stafford loans than for the unsubsidized variety (The difference: Subsidized loans mostly go to low- and middle-class borrowers, and the government pays the interest on them while the student is still in school). Unsubsidized Stafford loans have a 6.8 percent interest rate — that didn’t change this month — so at the moment, the rates on both the subsidized and unsubsidized loans are the same.
“I’m sure there are negotiations going on, and I’m sure that there might be a package that I could vote for that in some way is tied to the market, but it can still treat subsidized differently from non-subsidized,” he said.
On the other side, Republicans oppose another extension of current rates, arguing that it’s time to take power to set interest rates away from politicians and return them to the financial markets. Congress has had the power to set the rates since 2006.
Since passing their bill on May 23, House Republicans have largely let the Senate fight the interest rate battle. Minnesota Rep. John Kline, who introduced the GOP’s bill, appeared with House leadership on Monday to pressure the Senate to take up a market-based plan, be it his, the White House’s, or Machin’s.
“It is time for Senate Democrats to step up, take action, get a long-term solution and give these students the surety and the relief they need,” he said.
Devin Henry can be reached at email@example.com. Follow him on Twitter: @dhenry