Bill Setting New Student-Loan Interest Rates Clears Congress

A month after interest rates doubled on federally subsidized student loans, the U.S. House of Representatives has given final approval to a bill that ties borrowing rates to the financial markets, lowering the rates—at least temporarily.

Under the bill, HR 1911, which President Obama has said he will sign into law, undergraduates would be able to borrow at a 3.9-percent rate this fall, rather than the current rate of 6.8 percent. Graduate students would face a 5.4-percent interest rate, down from 6.8 percent, and parents would pay 6.4 percent, rather than 7.9 percent. The Senate passed its version of the bill last week.

While the rates are lower than what borrowers currently face, they could rise—to as high as 8.25 percent for undergraduates and 10.5 percent for parents—if the economy improves and it becomes more expensive for the government to borrow. Student and consumer groups say Congress should have set lower caps on the rates, to protect future borrowers.

“It’s unacceptable that lawmakers are asking today’s 13-year-olds to overpay on their loans in order to cut the rates for college students today,” said Christine Lindstrom, the higher-education program director for the U.S. Public Interest Research Group.

Interest rates on subsidized student loans doubled on July 1, after lawmakers failed to reach an agreement to avert the increase.

The deal, which was months in the making, represents a rare bipartisan agreement. To reach it, Republicans had to agree to cap interest rates, and Democrats had to accept a single rate for all undergraduate loans, subsidized or not. Still, some Democrats hope to revisit the debate when Congress takes up reauthorization of the Higher Education Act, to lower rates for future students.