Senate Deal on Student-Loan Interest Rates Is in Doubt

July 12, 2013

Hopes for a deal on a bill to undo the doubling of interest rates on some federal student loans faded on Thursday afternoon, after budget analysts said the plan would cost $22-billion over 10 years.

The interest rate on subsidized Stafford loans rose to 6.8 percent on July 1, after the U.S. Senate reached an impasse over plans to avert the doubling. In the days since, Democrats and Republicans have been scrambling to reverse the rate increase, while blaming one another for the stalemate.

On Wednesday night, it appeared that the Senate had finally reached a compromise, with a plan that would tie the interest rate on student loans to the rate on U.S. Treasury bonds. Republicans agreed to a cap on how high rates could rise—a key concession sought by Democrats—and Democrats accepted a single rate on all undergraduate loans, subsidized and not. (Since 2007, subsidized loans have carried lower interest rates than unsubsidized ones.)

But the deal depended on its neutrality toward the federal budget deficit, and the Congressional Budget Office's analysis of the cost sent lawmakers back to the drawing board. Negotiators are expected to meet again on Friday to rework the plan.

"Humpty Dumpty is back in pieces," said a senior Republican aide.