Congress heads to recess without student loan interest rate fix

The US Senate and House adjourned for the July 4 recess without taking action to prevent Federal student interest loans from  doubling to 6.8 percent on  July 1. Senators Joe Manchin (D-West Virginia), Tom Coburn (R-Oklahoma), Richard Burr (R-North Carolina), and Angus King (I-Maine) were working on a compromise proposal, but failed to meet the recess deadline. Their bill would base all undergraduate Stafford interest rates on the 10-year Treasury note plus 1.9 percentage points. Rates would vary from year to year for new loans, but remain fixed over the life of the loan. Based on today's 10-year Treasury note, that would lead to undergraduate loans with an interest rate of about 4.5 percent. Graduate and Parent PLUS loans would have higher rates. The full text and specifics of the bill are being adjusted based on Congressional Budget Office scoring and have not yet been released. Senate HELP Committee Chairman Tom Harkin (D-IA) is also circulating a market-based proposal of his own. 

Any Senate compromise would also need to be adopted by the House, which may be difficult depending on the budgetary impact of the bill. The House previously passed H.R. 1911 which would peg the loan rate to the 10-year Treasury note plus 2.5 percent, with the rate varying over the life of the loan. Senate Democrats also tried to pass a two-year extension of the current 3.4 percent rate with S. 953, but that bill fell nine votes short of the 60-vote threshold needed for consideration.

Congress has a slim window to find a retroactive solution following the July 4 recess, as the majority of student loans are made before the end of the summer.